Hong Kong securities watchdog has stepped up scrutiny to avoid Archegos-like meltdown in city, deputy CEO says
- Archegos meltdown shows funds with concentrated bets could go from winning to losing overnight, SFC Deputy CEO Julie Leung says
- Hong Kong regulators have been very proactive in enhancing risk management and preventing over leverage of margin lending, advisory body chief says
To mitigate the risk of such events happening in the city, the Securities and Futures Commission (SFC) was enhancing its “line of sight” into over-the-counter markets to identify any build-up of concentrated positions, and was stepping up its surveillance of prime broker activity, Julia Leung Fung-yee, the commission’s deputy chief executive, told the annual Hong Kong Investment Funds Association conference on Monday.
“The recent implosion of Archegos, the family office that defaulted on total return swaps’ margin calls, serves as a reminder that a fund with outsize and concentrated bets could go from winning to losing overnight, triggering massive sell-offs and leaving a trail of losses by prime brokers,” Leung said during her keynote speech. “We reminded some firms to strengthen the robustness of their liquidity monitoring and controls in terms of stress testing, setting targets and assessing expected redemption patterns,” she said.
The meltdown at Archegos in March left banks such as Credit Suisse Group, Nomura Holdings and Morgan Stanley nursing losses worth more than US$10 billion. Hwang, a Korean-American Wall Street investor, made big highly geared bets on companies such as ViacomCBS and was unable to meet margin calls when his bets went wrong. His wagers were financed by the banks through their prime brokerage units, which lend money to hedge funds and other private investment firms.
