Image: Reuters Berita 24 English - Following the failure of Archegos Capital Management, Hong Kong's financial watchdog is stepping up ...
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| Image: Reuters |
When it was caught short on highly leveraged deals last year, Archegos, a U.S.-based family office of investor Bill Hwang with $36 billion in assets, blew up, costing global banks $10 billion in damages.
The majority of Hwang's exposure was created through an over-the-counter equity derivative that was created by his bank counterparties, allowing him to get around the requirement to register his positions to American regulators.
SFC Deputy Chief Executive Officer Julia Leung said, "The collapse of Archegos caused us to take a fresh look at the surveillance methods we utilise to detect concentrated positions in the over-the-counter (OTC) market.
According to Leung, who is also the SFC's executive director for intermediaries, prime brokers who operate in the OTC derivatives markets have encountered "difficult problems" and it was "obvious from the Archegos fiasco last year."
She added that in order to evaluate current market procedures, the regulator is also conducting a thematic evaluation of OTC derivatives activities in Hong Kong. As part of this review, businesses' risk management, assessment, and escalation practises will be looked into.
The opaque OTC derivatives market's opaque practises and fragmented global regulation, according to Leung, make supervision more difficult. He said that gaps in oversight will persist without the incorporation of "risk governance mechanisms."
The SFC will also soon begin an assessment of block trading, or significant share sales in Hong Kong, with the hope of possibly introducing guidelines for how to handle such commercial activity.
We are investigating market sounding, which is the practise of market players sharing information with possible investors prior to the announcement of a (block trade) transaction, she continued.
