Archegos was too busy for margin calls
bloomberg.com
Archegos was too busy for margin calls
1–10 of 78 posts
Re: Archegos was too busy for margin calls
#2Some of the formatting of this document is remarkably poor.
Re: Archegos was too busy for margin calls
#3> Notably, this is not a situation where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent. Nor is it one where the architecture of risk controls and processes was lacking or the existing risk systems failed to operate sufficiently to identify critical risks and related concerns. The Archegos risks were identified and were conspicuous. The persistent failure of he business and risk to manage and remediate the risks, and pervasive issues of business competence and resourcing adequacy, described in detail in this Report, require CS’s urgent attention.
wow. this reads like 'culprits have been found and let go with their bonus packages'.
Re: Archegos was too busy for margin calls
#4Matt Levine did a pretty good writeup on this: https://www.bloomberg.com/opinion/articles/2021-07-29/archeg...
Re: Archegos was too busy for margin calls
#5If 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 other way! They’re at-will employees too.
Re: Archegos was too busy for margin calls
#6[deleted]
Re: Archegos was too busy for margin calls
#7Matt Levine did a pretty good writeup on this: https://www.bloomberg.com/opinion/articles/2021-07-29/archeg...
I did enjoy reading through his updates about the situation as it was developing, pretty interesting stuff.
I don't remember the exact line Matt Levine wrote, but he made a point of stating normally you couldn't get away with being this over leveraged, but since Archegos was a family firm it avoided some scrutiny. Interesting to think there will probably always be a way to avoid scrutiny when you're moving that much money around.
Re: Archegos was too busy for margin calls
#8Who wrote this?
Re: Archegos was too busy for margin calls
#9> Notably, this is not a situation where the business and risk personnel engaged in fraudulent or illegal conduct or acted with ill intent. Nor is it one where the architecture of risk controls and processes was lacking or the existing risk systems failed to operate sufficiently to identify critical risks and related concerns. The Archegos risks were identified and were conspicuous. The persistent failure of he busin…
This is common practice in post mortem analysis to try to determine the root cause in a blameless manner.
On the next iteration of this issue the eventual culprits of the first probably won't be there to remember what went wrong.
What might survive until then though is the set of procedures and guidelines put in place following the investigation recommendations.
So it's more effective to determine what process were insufficient than which person had the capacity to avoid something.
Re: Archegos was too busy for margin calls
#10I cannot believe that Archegos was "too busy" to read a request for additional collateral. They knew exactly what was going on, and they were hoping to buy more time and pray that the market would change in the direction they needed.
This sounds like a desperation play that didn't succeed, and Credit Suisse was left with the loss.
Now, I'm not much educated in finance... but risk is risk, and whether you have models or you have tarot cards, sometimes things just do not go the way you thought they would. If you're betting 1x, you can lose what you have. If you're betting with leverage, you can win bigger, or lose 1x (and potentially the creditor can lose the remaining Xx). Unless the creditor can automatically liquidate and close out a client's position if they can't make a margin call, it seems you would have to be crazy to be a creditor for leveraged clients. Eventually you will lose big because of a client.