One Big Investor’s Fire Sale Triggers Major Market Fears

One of the greatest margin calls of all time is wreaking havoc on some U.S. stocks.

According to a report by Bloomberg, Bill Hwang’s Archegos Capital Management was allegedly forced by lenders to sell more than $20 billion of stocks Friday in a massive fire sales.

The event has regulators again questioning the vulnerability of U.S. markets — just weeks after the Game Stop day-trading ordeal forced regulators to examine whether or not a group of overly leveraged investors could take down an entire market.

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The Archegos event is also calling into question the use of so-called “dark pools” — in which investors are able to make large trades without revealing their identity or their intentions.

Archegos Capital is said to have created sophisticated, complex derivatives products (known as CFDs, or “Contract for Differences”) that enabled it to allegedly amass stakes in publicly traded companies without having to declare its holdings.

Losses at Archegos are believed to have triggered margin calls for the firm — causing the forced sale of billions of dollars worth of securities, according to the Wall Street Journal. The sell-off is effecting numerous stocks with some names sinking more than 30% on Friday — and fresh losses for some key bank stocks Monday.

A margin call happens when the market moves against a large (highly leveraged) positions. This means the firm with the position needs to cough up more cash or other securities to ensure its broker that the losses can be covered.

The danger is that if one firm is SO highly leveraged and needs to sell everything in a rushed, forced sale — than that movement ripples through the rest of the market with a domino-like effect.

But, regulators hope is that the stress tests put in place at banks following the 2008 crisis will help even out any risks for a domino effect. Nonetheless, Credit Suisse and Normura both faced losses after they admitted they could incur substantial losses related to the Archegos trades. Shares of Nomura fell 13%. Credit Suisse lost more than 10%.

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