The positions “may have topped $50 billion,” but those weren’t actual stocks, but derivatives based on stocks, called Contracts for Difference (CFD), and Archegos may have never owned any of the underlying stocks, according to Bloomberg this morning, citing people familiar with the matter. This allowed Archegos’ exposure to those shares to remain anonymous until the trades blew up.
The secretive nature of these trades had the effect that the prime brokers to the fund, such as Credit Suisse, didn’t know about the involvement of other prime brokers, such as Nomura, Deutsche Bank, and Goldman Sachs. And when the forced selling started, each prime broker wasn’t alone in unwinding the positions but was doing so against the other prime brokers trying to do the same thing.
This blowup is one more sign of just how much leverage has been built up during this market mania, and how exposed investment banks are to this leverage.
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