The Fed’s just published a letter under SR 21-19 to supervise and assess the actions that led to the Archegos default by examining financial institutions and their relationships to investment funds.
The Federal Reserve is issuing this guidance to limit risk management.
SR 21-19 is intended for banking organizations with large portfolios and relationships with investment funds, such as hedge funds.
Some of you in the community wanted me to explain what this letter means and so I’m going to be breaking it down for you today.
Welcome to Franknez.com – today’s market news has to do with the Fed’s cracking down on banks and hedge funds. Interesting things are happening at the end of the year, aren’t they?
Let’s get started!
Speaking of interesting things happening.
The ape community has attracted the attention of the SEC, mainstream media, and now the Federal Reserve.
It’s worth noting that progress is progress, no matter how slow or long it takes.
Why is SR 21-19 Significant?
This federal piece of document is significant for many reasons.
- It highlights lack of transparency in the markets.
- The letter acknowledges a relationship amongst financial entities and confirms strategic involvement.
- It expresses how overleveraging positions pose a major risk towards meeting debt obligations.
- And finally, SR 21-19 touches topic on providing proper margin terms to these institutions.
Reserve banks are being asked to distribute this letter to the supervised organizations in their districts and to appropriate supervisory staff.
The board is continuing to review firms’ weaknesses to take further action.
The Feds are looking for a solution that will mitigate risk and prevent hedge funds from defaulting, as seen with Archegos.
Archegos defaulted on March 26, 2021, causing over $10 billion in losses across several large banks.
We saw Citadel has lose billions of dollars shorting AMC stock before ultimately making their money back.
The hedge fund also began freezing any attempts for its clients to pull their investments out by issuing ultimatums that would make it impossible for the customer to return.
And on top of that, they issued a hefty fee for withdrawing their investments.
New Margin Call Terms Are on The Horizon
It is unclear what the margin call terms will be for these overleveraged financial institutions.
However, the letter states that they will be ensuring that these institutions receive the appropriate margin requirements.
They will either avoid inflexible and risk-insensitive margin terms or extend close-out periods.
Risk-insensitive meaning appropriately raising the margin requirements dependent upon how overleveraged a financial institution is.
Hedge funds shorting AMC and GME stock have amounted an overwhelming number of borrowed shares to short the stocks.
Yet these stocks have remained leveled due to the strength of retail investors.
The feds are about to impose massive margin requirements on overleveraged hedge funds.
Now, we won’t know how long this process will take.
What we do know is that the federal government isn’t taking hedge funds lightly anymore.
And if the appropriate margin terms are too high for hedge funds to maintain, then they’ll be forced to close short positions.
Getting To the Bottom of Synthetic Shares
Will the feds come across the millions of synthetic shares these overleveraged hedge funds have created?
It will be a massive surprise if they don’t.
See, the feds are requiring their supervisors to receive adequate information to fully understand the risks of the investment funds they are investigating.
This includes positions and counterparty concentrations, or a specific sector in which two financial entities are specifically focused on.
Failing to meet transparency will mean the feds will take action on setting conservative terms between the parties.
Identifying synthetic shares in the market is a rabbit hole the feds themselves will have to go down.
My suggestion is for the community to push the Department of Justice to investigate these synthetics.
Raising awareness to these problems in the market is key to sparking a MOASS.
Interesting Year for Hedge Funds
Hedge funds face more scrutiny than ever before in history.
They have created system risk and pose a threat to our businesses and economy.
Hedge funds never saw a community of activists fight them for a fair market.
Retail investors caused Archegos to default and Melvin Capital to lose billions of dollars resulting in a life-line from Citadel Securities.
Melvin Capital has stated that they’re out of the game.
However, financial institutions such as Citadel Securities and Bank of America Corp continue to short AMC stock.
With the feds now involved, this is going to be an interesting year for both hedge funds and retail investors.
Leave Your Thoughts Below
What do you think of the SR 21-19 letter?
Could this federal document be the first step towards the uncovering of synthetics in the market?
Are we closer to margin calls than ever before?
Leave your thoughts below.
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Although we can hope for it, there are no guarantees that the SEC will actually force a margin call. I believe in the DD for the MOASS, I also believe that things are being propped up due to manipulation as there has been talk from contrarians that we are well overdue for a market crash (but I think those people don’t think those contrarians put much faith in AMC as a safe haven); with so much outstanding debt and the junk bonds in China (reports say that Oaktree’s attempt to take control of a certain part of Evergrande of China has failed), it would seem that these hedge funds and brokers and institutions such as Blackrock and Vanguard would be hurting and would need to liquidate. But there are fighting to maintain things as they are, and thus, they do not care about the well being of regular people; the rich have demonstrated time and again that they are only concerned about themselves. I believe it will come to an end for them and that we will see a change for the better and that those who wish to do good with their new wealth will be able to do so, but when God only knows. I just hope that if he does give this to those who will share will do it soon.
How do we reach out to the department of justice
Thank you for raising awareness about this ongoing hedgie manipulations! I wish more popular youtubers do the same instead of analyzing stats all day. Ape movement is more than just buying and holding – it’s about fighting against the market corruption, exposing their shady practices and demanding justice not only for us the Apes but for the entire market and retail investors. And us 4 millions apes can make big waves! Counting on you DOJ, please don’t let us down.
I agree 💯
Can’t believe we only hear of a response once Shitadel places a fee on the 1% to withdraw their investments…
Retail investors are fed up!We demand fair market conditions to be implemented…..NOW……CORRUPTION NO MORE!PRISON TIME AND ARRESTS UNFORTUNATELY FOR MANY THIEVES IS NEEDED!
We demand a fair market 💯💯💯
Yes Donna I’m with you!