CFDs - The Dirty Little Secret Behind The Collapse Of Archegos

zerohedge2021-03-29

Stop us if you've heard this one before -Wall Street prime brokers allowed hedge funds to dance while the music was playing with ever greater leverage in off-exchange and unregulated derivatives... ...

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Comments

DenDenBear
2021-03-30
DenDenBear
Comment and like thanks
Kiteflying
2021-03-30
Kiteflying
Stay away from trading and remember to take profits.
All in Tesla
2021-03-30
All in Tesla
Guess more will surface.. lesson learned here is always invest in reputable and good companies. Not one that is driven up by so called hedge funds and manipulate the market. No easy money out there just sharks. Trade wisely and not follow the herd ?
Bulbul
2021-03-30
Bulbul
Maybe staying away from the stock market is a wise decision after all. Hard to have confidence considering how rigged the whole game is.
diggydog
2021-03-30
diggydog
Scary
Soonyee
2021-03-30
Soonyee
What can we do
- AS78:
  Monitor first. Please like me back, thanks

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The Dirty Little Secret Behind The Collapse Of Archegos</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCFDs - The Dirty Little Secret Behind The Collapse Of Archegos\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-03-29 21:21 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.zerohedge.com/markets/cfds-dirty-little-secret-behind-collapse-archegos?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29><strong>zerohedge</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Stop us if you've heard this one before -Wall Street prime brokers allowed hedge funds to dance while the music was playing with ever greater leverage in off-exchange and unregulated derivatives... ...</p>\n\n<a href=\"https://www.zerohedge.com/markets/cfds-dirty-little-secret-behind-collapse-archegos?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://www.zerohedge.com/markets/cfds-dirty-little-secret-behind-collapse-archegos?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29","article_id":"1193371328","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1193371328","pubTimestamp":1617024119,"columns":[],"sourceInfo":null,"weMediaInfo":null,"summary":"Stop us if you've heard this one before -Wall Street prime brokers allowed hedge funds to dance whil","collect":0,"end_time":0,"defaultTopTitle":"zerohedge.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"CFDS-Archegos崩溃背后肮脏的小秘密","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{},"content_text":"Stop us if you've heard this one before -Wall Street prime brokers allowed hedge funds to dance while the music was playing with ever greater leverage in off-exchange and unregulated derivatives... until the first sign of trouble and the whole house of cards comes crashing down in a potentially systemic manner.\nThe bloodbath in various media stocks on Friday has brought light back to one of the dark corners of the equity trading business -so-called contracts-for-differences (CFDs).\nAs Bloomberg reports, much of the leverage used by Hwang’s Archegos Capital was provided by banks including Nomura and Credit Suisse -who have most recently admitted huge losses- asCFDs, which are made off exchanges, allow managers like Hwang to amass stakes in publicly traded companies without having to declare their holdings(far in excess of the 5% stakes that require regulatory reporting).\nCrucially,as Bloomberg notes,this meansArchegos may never actually have owned most of the underlying securities - if any at all- as the CFD is akin to a privately-arranged (i.e. off exchange and bespoke) futures contract where the differences in the settlement between the open and closing trade prices are cash-settled (there is no delivery of physical goods or securities with CFDs).\nWhat makes the situation worse is thatArchegos reportedly took positions in these CFDs with various prime brokers- and because these positions are by their nature not centrally cleared or aggregated, this left prime broker X unaware of their client's exposures with prime broker Y... which in this case was huge.\nThe leverage Hwang was given made him look like a trading genius as the various positions he took were pumped and pumped (and helped by gamma-squeezers) but now look like a reckless gambling fool as the bets collapsed.\nCFDs linked to stocks (with a gross market value of around $282 billion at end June 2020) are among bespoke derivatives that investors trade privately between themselves, or over-the-counter, instead of through public exchanges.This is exactly the kind of hidden risk that amplified the losses during the 2008 financial crisis.\nAsBloombergnotes,regulators have begun clamping down on CFDs in recent years because they’re concerned the derivatives are too complex and too risky for retail investors,with the European Securities and Markets Authority in 2018 restricting the distribution to individuals and capping leverage. In the U.S., CFDs are largely banned for amateur traders... but not for hedge fund managers who are \"sophisticated\"?\nBut,banks still favor them because they can make a large profit without needing to set aside as much capital versus trading actual securities(driven to this opaque market as an unintended consequence of heavy regulation following the 2008 financial crisis).\nIn the case of Archegos, there is very little transparency about Hwang’s trades, but market participants suggest his assets had grown to anywhere from $5 billion to $10 billion in recent years withtotal exposure topping $50 billion. And bear in mind,this is not 'leverage' in the old-fashioned sense(i.e. banks allow you buy X-times the amount of stocks relative to your capital); this ispurely synthetic- the firm has no actual underlying asset to fall back on, but is linearly exposed to losses (and gains) on a margined basis.\nAnd as we noted at the beginning,this has the potential to be much more systemicas the losses created by Archegos' margin calls trigger more margin calls and more potential losses for the prime brokers. Think we are exaggerating, then explain why the costs of counterparty risk hedging for Credit Suisse for example, has exploded in the last few days...\nSource: Bloomberg\nMohammed El-Erian told CNBC this morning that\"It seems to be a one-off ... for now, it looks contained. And that's a good thing.\" But added \"what we don't want is a pile-up.\"\nWe look forward to the Congressional hearings on this.","kind":"news","is_publish_news":false,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":355581794,"gmtCreate":1617085306318,"gmtModify":1704801763437,"author":{"id":"3576147606699436","authorId":"3576147606699436","name":"DenDenBear","avatar":"https://static.tigerbbs.com/01e983ba302bc271159224fa4bb390e6","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3576147606699436","authorIdStr":"3576147606699436"},"htmlText":"Comment and like thanks","listText":"Comment and like thanks","text":"Comment and like thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355581794","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355248714,"gmtCreate":1617079459938,"gmtModify":1704801680947,"author":{"id":"3559824795366750","authorId":"3559824795366750","name":"Kiteflying","avatar":"https://static.tigerbbs.com/0c4e5c6dfeb378c0ccafe8d68fd396c2","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3559824795366750","authorIdStr":"3559824795366750"},"htmlText":"Stay away from trading and remember to take profits.&nbsp;","listText":"Stay away from trading and remember to take profits.&nbsp;","text":"Stay away from trading and remember to take profits.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355248714","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355258980,"gmtCreate":1617078492040,"gmtModify":1704801665901,"author":{"id":"3577580366301047","authorId":"3577580366301047","name":"All in Tesla","avatar":"https://community-static.tradeup.com/news/8db11f6e6a9a2a52850e734188850dc2","vip":1,"crmLevel":9,"crmLevelSwitch":1,"idStr":"3577580366301047","authorIdStr":"3577580366301047"},"htmlText":"Guess more will surface.. lesson learned here is always invest in reputable and good companies. Not one that is driven up by so called&nbsp;hedge funds and manipulate the market. No easy money out there just sharks. Trade wisely and not follow the herd ?","listText":"Guess more will surface.. lesson learned here is always invest in reputable and good companies. Not one that is driven up by so called&nbsp;hedge funds and manipulate the market. No easy money out there just sharks. Trade wisely and not follow the herd ?","text":"Guess more will surface.. lesson learned here is always invest in reputable and good companies. Not one that is driven up by so called hedge funds and manipulate the market. No easy money out there just sharks. Trade wisely and not follow the herd ?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355258980","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355262949,"gmtCreate":1617076420481,"gmtModify":1704801641547,"author":{"id":"3577251545430244","authorId":"3577251545430244","name":"Bulbul","avatar":"https://static.tigerbbs.com/faf2ebfa43184b2844994ea9a52cddf9","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":5,"crmLevelSwitch":0,"idStr":"3577251545430244","authorIdStr":"3577251545430244"},"htmlText":"Maybe staying away from the stock market is a wise decision after all. Hard to have confidence considering how rigged the whole game is.&nbsp;","listText":"Maybe staying away from the stock market is a wise decision after all. Hard to have confidence considering how rigged the whole game is.&nbsp;","text":"Maybe staying away from the stock market is a wise decision after all. Hard to have confidence considering how rigged the whole game is.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355262949","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355296342,"gmtCreate":1617073003986,"gmtModify":1704801589768,"author":{"id":"3575091423649914","authorId":"3575091423649914","name":"diggydog","avatar":"https://community-static.tradeup.com/news/476e481044aa54d1d955e8bc4b856dd4","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3575091423649914","authorIdStr":"3575091423649914"},"htmlText":"Scary","listText":"Scary","text":"Scary","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/355296342","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":355616414,"gmtCreate":1617066516738,"gmtModify":1704801482686,"author":{"id":"3577319788439179","authorId":"3577319788439179","name":"Soonyee","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3577319788439179","authorIdStr":"3577319788439179"},"htmlText":"What can we do&nbsp;","listText":"What can we do&nbsp;","text":"What can we do","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/355616414","repostId":1193371328,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":3917264,"gmtCreate":1617067211123,"gmtModify":1680782244728,"authorId":3554958921608603,"author":{"id":3554958921608603,"idStr":"3554958921608603","authorId":3554958921608603,"name":"AS78","avatar":"https://community-static.tradeup.com/news/d392d10a42f496e319268418e7602694","vip":1,"crmLevel":6,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":355616414,"type":1,"supId":0,"prevId":0,"content":"Monitor first. Please like me back, thanks","text":"Monitor first. Please like me back, thanks","html":"Monitor first. Please like me back, thanks"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":128,"commentSize":41,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1193371328"}