Autocall dealers wary of Nikkei volatility surge

Dealers caught in danger zone as losses lurk on upside and downside spikes

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Japanese stocks are edging into territory that is making exotic equity desks nervous. It’s the point at which a sudden market move – either up or down – threatens to drive up the price of volatility, right at a time when dealers would collectively need to buy more of it to rebalance their exposures.

Dealers say a rapid 5% rise or fall in the Nikkei 225 from 21,290, the benchmark’s level as of March 13, could lead to sizeable hedging losses for firms that sold autocallable bonds linked to the