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Archegos was too busy for margin calls

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Re: Archegos was too busy for margin calls

#71

Post by MichaelZuo »

TheOtherHobbes wrote: post #67
Animats wrote: post #62

Earlier quoted context omitted.

couldn't get themselves to just close out the customer's positions. Exactly. CS let Archegos get into a position where, if they pulled the funding plug on Archegos, Archegos would go bust. At which point everybody hates everybody.

Sunk cost fallacy. If you get to the point where pulling the plug means someone has gone bust, it's already over and you need to pull the plug sooner rather than later.

Well the folks at Credit Suisse aren’t perfectly rational beings either, it’s totally understandable why they behaved like that, most folks would engage in wishful thinking when staring at a multi billion dollar loss that hasn’t been realized yet (several hundred times their compensation).

Re: Archegos was too busy for margin calls

#72

Post by eru »

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?

> Can individuals access that sort of margin?

Yep, I can get lots and lots of margin from IBKR. It helps that I'm not an American.

Re: Archegos was too busy for margin calls

#73

Post by rtkwe »

tedunangst wrote: post #45
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.

I think from my reading of the article that the dynamic margin was a compromise that would require less margin from them than what the standard formulas would require. Business balked at requiring the actual $1B margin that the original contracted margin method would require so they were trying to switch to a new one.

Re: Archegos was too busy for margin calls

#74

Post by djanogo »

sooheon wrote: post #47
djanogo wrote: post #42

Earlier quoted context omitted.

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.

Of course they have to put that in TOS, this whole discussion is about how CS didn't enforce changes in margin on time, and they ended up bag holding.

What do you want them to do? bag hold a loosing or risky trade and pass the effects to other clients?

Re: Archegos was too busy for margin calls

#75

Post by sooheon »

argonaut wrote: post #55
sooheon wrote: post #47

Earlier quoted context omitted.

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.

Every brokerage has those terms. Even Credit Suisse in this article had this right over Archegos's positions - they just were too scared to exercise it.

Of course. IBKR has lower rates and approves more easily, therefore they will be much more trigger happy. CS timidly emailed about potentially discussing margin rate adjustments, IBKR can liquidate your positions for instantaneous margin violations without warning or a margin call. The assumption is your leveraged position is hedged well enough to protect against untimely margin calls, and the cost of hedging is roughly equivalent to the nominal margin rate savings they offer.

Re: Archegos was too busy for margin calls

#76

Post by mannykannot »

satellite2 wrote: post #59
mannykannot wrote: post #52

Earlier quoted context omitted.

In cases like this, I doubt you can determine which process were insufficient without noticing which people had the capacity to avoid the problem, yet did not exercise it.

That's correct, but unless the investigation determined they acted with malice, they should not be explicitly mentioned.

Good point.

Re: Archegos was too busy for margin calls

#77

Post by vasco »

dang wrote: post #63
vasco wrote: post #40

Earlier quoted context omitted.

Why do you change URLs instead of submitting the one you like instead as a regular user and let upvotes decide? I appreciate and am thankful to the effort you put into moderating HN, but the user did not submit this URL and changing it from under them is super weird, even with a comment explaining it. Not only that you changed it to a paywalled link which is simply bad form.

Once a story is on the front page, it's in a completely different category than the /newest page, so we can't just "let upvotes decide". Even when there's a strictly better URL, by far the most likely outcome is that it would languish unnoticed on /newest. If it did get noticed and lead to a front page discussion, we'd then have the problem of two separate front page discussions (i.e. dupes). The upshot is that impro…

It was weird to find out that it's done in the first place! I didn't know moderation took a post that hits front page to become HN's more than the author but can see now how it makes sense. Thanks for answering and for keeping a great community going for so long!

Re: Archegos was too busy for margin calls

#78

Post by naveen99 »

munchler wrote: post #56
naveen99 wrote: post #53

I am surprised there is no conspiracy theory about some third party forcing archegos to blow up on purpose. it would be a convenient way for a secret police or other extra legal group to punish or blackmail a wealthy person while making a little money on the side at the expense of a big bank. I mean billy only put away a few hundred million protected in trusts and charities… do deca billionaires blow up this spectacu…

Hanlon's razor: Never attribute to malice that which is adequately explained by stupidity.

And never attribute to stupidity what can be explained adequately by self interest.
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