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Archegos was too busy for margin calls

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Re: Archegos was too busy for margin calls

#41

Post by rtkwe »

fny wrote: post #38
huitzitziltzin wrote: post #30

Earlier quoted context omitted.

Do you have multiple billions of dollars at stake with the broker? If yes: he might annoy you enough with his impertinent margin demands that you go elsewhere, which makes his boss Very Unhappy. If no: his boss has never heard of you. Also it sounds like liquidating many of these positions would be no easy feat, when they represented 3-5 days mean trading volume in the underlying asset.

If I have multiple billions at stake, I would assume my broker would be even more demanding of responding within a time frame. Note, I'm not calling for automatic liquidation, but rather some timeframe wherein discussions must be held or else the posted collateral is seized.

The problem there is at that level you're also a significant source of money for both the company and whoever gets bonus/commission on the money you bring in so suddenly there's a lot of reason to not make you annoyed enough to take your business elsewhere.

Re: Archegos was too busy for margin calls

#42

Post by djanogo »

Dlanv wrote: post #25
vmception wrote: post #5

If you’ve ever traded with anything better than Reg-T margin, you know this whole system is ripe for implosion. The leverage is insane! Reg-T (like the kind Robinhood has) doesn’t allow long options to be bought on margin. Other margining systems allow as low as 6% down even on options. And when you’re talking real money, your personal risk/compliance team understands their employment is contingent on looking the oth…

Can individuals access that sort of margin? The best I've seen is portfolio margin at some brokers. What's the name of the "margining systems" you are referring to?

The closest for retail customers is IBKR, needs >110k they have lowest margin rates. They approve pretty easily.

On other hand Fidelity will reject portfolio margin even if you have significantly more than 100k.

Re: Archegos was too busy for margin calls

#43

Post by f0rgot »

My question is, how profitable are these services that they can keep losing money on an implosion here and there and still want to be in that business? I guess if the other 99 PB clients are netting you $10B you can lose some to Malachite Capital Management and Archegos now and then.

Re: Archegos was too busy for margin calls

#45

Post by tedunangst »

fny wrote: post #26

Can someone provide color as to why this was such a discretionary process? If I get a call from my broker, and I don’t post collateral, I’m liquidated immediately. I’d at least expect a fixed date which triggers liquidation if you catch someone picking their nose. Also, I find it hilarious that this whole thing was bound to blow up after the recent Chinese regulatory crackdown anyway.

They had a contract for static margin and wanted to change to dynamic margin. If your broker changes their terms of service, they likely won't immediately liquidate you pending approval.

Re: Archegos was too busy for margin calls

#46

Post by ackbar03 »

lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

>Another PB I worked with had a similar issue. A high rolling Gulf guy came in, wanting to do big FX trades on little margin. Risk said no, boss overruled them. Dude blew up, PB lost a lot of capital, boss got fired.

I used to work in finance but quit. The industry is still by far driven by mostly by sales/relationships/politics. It seems like in this case the right person got fired. I knew of a trader on a credit desk that blew up their desk (lost many times their pnl in a year). His boss (head of desk) got fired instead and he got promoted to his position. Yet it was a completely unsurprising outcome and spoke so much about the industry

Re: Archegos was too busy for margin calls

#47

Post by sooheon »

djanogo wrote: post #42
Dlanv wrote: post #25

Earlier quoted context omitted.

Can individuals access that sort of margin? The best I've seen is portfolio margin at some brokers. What's the name of the "margining systems" you are referring to?

The closest for retail customers is IBKR, needs >110k they have lowest margin rates. They approve pretty easily. On other hand Fidelity will reject portfolio margin even if you have significantly more than 100k.

Caveat emptor: IBKR's TOS makes it clear they reserve the right to liquidate your positions at any time for basically any reason, including margin requirement changes.

Re: Archegos was too busy for margin calls

#48

Post by snypher »

ackbar03 wrote: post #46
lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

>Another PB I worked with had a similar issue. A high rolling Gulf guy came in, wanting to do big FX trades on little margin. Risk said no, boss overruled them. Dude blew up, PB lost a lot of capital, boss got fired. I used to work in finance but quit. The industry is still by far driven by mostly by sales/relationships/politics. It seems like in this case the right person got fired. I knew of a trader on a credit de…

Any idea how they got away with this?

Re: Archegos was too busy for margin calls

#49

Post by jgalt212 »

ackbar03 wrote: post #46
lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

>Another PB I worked with had a similar issue. A high rolling Gulf guy came in, wanting to do big FX trades on little margin. Risk said no, boss overruled them. Dude blew up, PB lost a lot of capital, boss got fired. I used to work in finance but quit. The industry is still by far driven by mostly by sales/relationships/politics. It seems like in this case the right person got fired. I knew of a trader on a credit de…

pessimists don't get promoted, but more importantly the most important skill is convincing your boss and the boss's boss that your course of action is the best path forward.

Re: Archegos was too busy for margin calls

#50

Post by credit_guy »

TuringNYC wrote: post #21
lordnacho wrote: post #16

Former fund manager here. Wow, this is really interesting. So CS actually knew what risk it was taking, the hypothesis that Archegos had kept its positions private from several lenders is false. They knew what was going on and couldn't ask for more margin, and when they did without a response they couldn't get themselves to just close out the customer's positions. The problem is actually one of internal incentives, f…

I'm speaking about this at a conference next week. Here is the MONEY QUOTE from Paul Weiss investigative report: >>> ...further, the various Risk Committees only had access to data that were four to six weeks old. As a consequence, Risk was unaware of, and unable to fully appreciate in real time, the magnitude and pace of the exponential growth in Archegos’s positions... Ref: https://www.credit-suisse.com/about-us/en…

There are many interesting quotes, but for me this is the one that explains everything:

"Indeed, the 'Action/Decision' for Archegos was for CRM to 'notify of any changes with the counterparty and revisit the counterparty at afuture meeting.' CPOC did not set a deadline for remediating Archegos’s limit breaches, for moving Archegos to dynamic margining with add-ons, or even for reporting back or revisiting the status of Archegos at a futuremeeting."

The Archeos situation was escalated as far up as possible, up to this CPOC committee, where the Chief Risk Officer of the Investment Bank was a member. Instead of the CRO breathing down their neck until the situation was remediated, they got away with a bullet point in some minutes, without even a set deadline.

It appears that Credit Swiss replaced their CRO though.

https://www.bloomberg.com/news/articles/2021-07-29/credit-su...

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