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Leverage and derivatives: The case of Archegos

Author

Listed:
  • Bouveret, Antoine

    (Senior Economist, European Securities and Markets Authority, France)

  • Haferkorn, Martin

    (Risk Analysis Officer, European Securities and Markets Authority, France)

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.

Suggested Citation

  • Bouveret, Antoine & Haferkorn, Martin, 2023. "Leverage and derivatives: The case of Archegos," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 15(3), pages 238-250, June.
    • Handle: RePEc:aza:jsoc00:y:2023:v:15:i:3:p:238-250
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    More about this item

    Keywords

    leverage; equity swaps; margins; procyclicality;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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