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Leverage and derivatives: The case of Archegos
Journal of Securities Operations & Custody,
15
(3),
238-250
(2023)
Abstract
In March 2021, the default of Archegos, a US family office, led to large losses for some global banks. Archegos was able to accumulate large exposures to, and leverage on, equities by entering into derivatives transactions with bank counterparties. When the price of the underlying stocks started to decline, the firm was unable to meet variation margins, resulting in the liquidation of the stocks by the counterparty banks. In this paper, European Market Infrastructure Regulation (EMIR) data is used to analyse Archegos’ positions and show that it is possible to track the steep increase in concentrated exposures that the family office undertook in February and March 2021. The findings show how regulatory data collected under EMIR can be used to monitor leverage and concentration risk in derivatives markets.
Keywords: leverage; equity swaps; margins; procyclicality
The full article is available to subscribers to the journal.
Author's Biography
Antoine Bouveret is a senior economist at the European Securities and Markets Authority (ESMA). He has been working on financial stability issues for over 15 years in different institutions, including the French Treasury and the International Monetary Fund. His work focuses on risks related to non-banks, such as money market funds and investment funds as well as operational and cyber risk. Antoine holds an MSC in economics and a PhD in economics from Sciences-Po Paris.
Martin Haferkorn is a risk analyst at the European Securities and Markets Authority (ESMA) and has been at the forefront of analysing EMIR data for over six years. He has played a key role in several analytical and statistical projects aimed at gaining insights into European markets and evaluating the use of derivatives. Before joining ESMA, Martin was a research assistant at the Goethe University of Frankfurt and the E-Finance Lab e.V., where he focused on financial markets' microstructure research, particularly in the areas of HFT and regulation. Martin holds a Diploma from TU-Ilmenau and a PhD from Goethe University Frankfurt.
