America has abolished the rules of derivatives for a decade before Archigos Blue

The rules, written after the 2008 financial crisis, are meant to limit block-like possibilities Arkegos Capital Not fully implemented yet, the fiasco that shocked and raised Wall Street has thrown a spotlight on regulators Question Capitol Hill

Serious parts of the 2010 Dodd-Frank Act, a 8446-page law designed to benefit large banks and take additional risks in the derivatives market, have been repeatedly delayed.

Critics are now arguing that regulators quickly enforced the rules, in Bill Huang’s family office and Many billions of dollars in losses This is because two banks may be limited.

In particular, the rules that governed the disclosure of Archegos derivatives trading are still not in effect, and players like Howeing are not required to post initial margins in the selection process, to reduce the potential trading loss of payments. Huang was able to bet more than 50 50 billion on the share price of a handful of U.S. and Chinese companies and could not pay his rewards when they started going against him.

Diane Jaffe, a portfolio director at asset manager TCW, said regulators applied Dodd-Frank at an “anemic” pace. The ability of an unfamiliar family office like Archegos to run such an outsourced risk is “like the last hurray … before the regulations came,” he said.

Equity total return exchanges, such as those used by Archigos, were overseen by the Securities and Exchange Commission, which was much slower in writing its rules than the Commodity Futures Trading Commission, the chief derivatives regulator.

The SEC rules are finally set to take effect on November 1. If they had already done so, the SEC would have been able to access Archegos business data, including the size of each transaction and the family office with whom the transaction took place – other parts of the already established rules derivatives market are regulated by the CFTC.

“One of the costs of the SEC’s failure to maintain a properly regulated swap market 13 years after it was at the center of the cause and spread of the 200-year-old crash is the cost,” said Dennis Kelher, president of Advocacy Group Better Markets.

The ambiguity of Archegos’ position proved to be at the center of the incident, with most of his business counterparts unaware that he had taken a similar position with other banks across Wall Street. This happened when Huang Archegos called many opponents together Meeting in late March It became clear to each bank how large and centralized Archegos’ positions were, people familiar with the meeting said.

“The SEC’s 10-year delay in enforcing the rules was able to provide more transparency in what was happening,” said an executive over government control of a larger hedge fund. “The SEC completely throws the ball.”

The SEC declined to comment.

Marginal requirements were delayed

The SECO has not enforced rules regarding margin requirements for derivatives trading conducted away from exchanges and clearing houses, it regulates broker dealers.

Extensive global regulation that asset managers set aside their swap contracts for more money is defined by the International Private Committee for Banking Supervision and the International Organization of Securities Commissions (ISCO). Some discounts are given for.

In the United States, this task is divided into a host of regulators. Federal banking regulators have already introduced margin requirements for large banks doing business with each other. However, with the Covid-19 hit last year, world regulators agreed to delay the implementation of the rules on business derivatives of small financial institutions from September 2020 to September 2022.

The decision means that a group like Archegos – which according to people familiar with the business had a derivatives position of more than অবস্থান 50 billion – did not need to post any margin when a U.S. regulator first started trading.

If the delay is not agreed, Archigos probably fell three times the size threshold set last September, forcing him to post a margin after the value of his fictitious derivatives exposure reached $ 8 billion by Basel and Iosco Standard. Adequate cash is required to bring potential losses under 10 days for rules based on the historic historical performance of the shares.

“Rules were made to deal with these risks but they were made on a schedule that ended too late to catch this adversary,” said a derivatives lawyer for an international law firm.

Extensive markets were heated

Multiple derivative advocates have noted that post-financial-crisis capital regulation has helped curb broad markets, with some banks engaging in exploitation of size losses without the need for state intervention.

Credit Suisse losers a 4.7bn loss, Although Numura warned It could lose 2 billion. Collectively, Morgan Stanley, Goldman Sachs and Wells Fargo sold more than that. B 20bn worth of stock They took it as a hedge of their business with Archegos to limit their losses. So far, nine banks, including Deutsche Bank, UBS, Mitsubishi UFJ Financial Group and Mizuho, ​​have been implicated.

The bank’s prime brokerage units, which enabled Archego’s supercharged businesses, did not disclose how much margin they needed when the fund first began transacting. Lawyers who have worked with banks said they did not usually apply the regulatory minimum before they became effective due to competitive pressures.

Credit Suisse, Deutsche Bank, Goldman, MUFG, Mizuho, ​​Morgan Stanley, Numura, UBS and Wells Fargo declined to comment.

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