Banks such as Nomura and Credit Suisse offer broker services to clients such as Archegos, lending them money to buy shares and other assets, while also processing their trades.
The fund also may have used contracts-for-difference, a type of short-term derivative that allows traders to bet on the entry and closing prices of a given stock.
But because both derivatives do not involve actually owning the shares themselves, Archegos was not required to disclose those positions.
When you’re hit with a margin call you can either deposit additional cash, liquidate unmargined securities, or sell your stocks.
Archegos couldn’t meet its margin call.
This led to intense selling pressure on Friday in a number of the names that Archegos had taken concentrated positions in, as its lenders dumped Archegos’ positions at a pace described as unprecedented.
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Author: H. A. Goodman