Tag: Private Family Offices

Phase 6 Margin Call Requirements on The Way

Phase 6 Margin Call Requirements
Market News: Phase 6 Margin Call Requirements on the way | ISDA

Market News: Phase 6 margin call requirements are on the way.

Institutions under UMR who had not previously been affected by these specific margin requirements will be as of September 1st, 2022.

Uncleared Margin Rules (or UMR) were created to address the OTC derivatives market–and its participants– in the wake of the global financial crisis (GFC) of 2008-2009.

It implemented new margin requirements for non-centrally cleared derivatives to avoid further systemic risk.

For this reason, they were ‘phased in’, or broken down by phases.

Institutions affected by phase 6 margin call requirements could find themselves in a sticky situation and I’m going to discuss why down below.

Let’s get started!

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Preparing for margin calls

The requirement to exchange initial margin for over-the-counter (OTC) derivatives is one of the last remaining pillars of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that remains to be fully implemented.

The five-year implementation period began in 2016.

UMR Phases - Phase 6 Margin Requirements
UMR Phases – Phase 6 margin requirements

The chart above depicts the number of counterparties affected throughout each phase.

Phase 5 occurred in September of 2021 where 319 counterparties were affected.

We will be entering Phase 6 in September of 2022, where 775/990 counterparties with more than the $8 billion scope detailed on the graph, or gross amount across all uncleared OTC trades, will be affected.

Phase 5 of UMR touched a mix of sellside and buyside firms, especially medium-sized banks and larger buyside firms.

However, Phase 6 is almost exclusively buyside-focused meaning we could potentially see a massive market rebound, per Bloomberg.

Institutions affected by Phase 6 margin call requirements may include asset managers, banks, hedge funds, and private family offices.

The entire process is extremely challenging according to Bloomberg.

But while it may seem complex in nature, it’s the results that truly matter.

How long will it take for margin calls to happen?

Although Phase 6 margin call requirements are going into effect on September 1st, 2022, it’s important to note that this is going to take some time.

The derivatives market is massive, now boasting approximately 1 quadrillion derivatives as of May 2022, per Investopedia.

The Senior Principal at BNY Mellon has said in the past that even after Phase 6 there will be margin calls that will still have to be processed.

That’s how massive this event will be.

Phase 6 margin call requirements will begin to margin a variety of sized banks, hedge funds, market makers, and family offices.

The bottom line, the markets need this reset, and its coming.

For a much greater and in-depth walkthrough of what this event means, check out AMCBIGGUM’s video below.

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Phase 6 Margin Call Requirements meaning

Family Offices Are Unregulated Hedge Funds [Exposed]

Family offices are unregulated hedge funds
Bill Hwang – founder of family office Archegos Capital

Incredible information has surfaced from the community in regard to unregulated hedge funds posing as family offices.

This industry holds trillions of dollars in assets globally with about 40% being held in the United States.

What’s more alarming is that these family offices aren’t regulated nor registered with the SEC (Securities Exchange Commission), allowing financial institutions to use this network of unregulated trading to their advantage.

In this article we’re going to dive deep into the seriousness of this inequality in the markets.

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Welcome to Franknez.com – the blog that protects retail investors from injustices in the markets. Today we’re discussing a loophole in the market that has been overlooked.

Let’s get started!

The inception of Archegos family office

Family offices Archegos

A well-known ‘family office’ you might have heard of is Archegos Capital, founded by Bill Hwang.

Archegos family office had $120 billion total exposure according to Credit Suisse Report, causing $10 billion in trading losses to the world’s largest banks.

Two of which included Credit Suisse and Morgan Stanley.

Bill Hwang was mentored by hedge fund expert Julian Robertson from Tiger Asia Management and Tiger Asia Partners, a hedge fund that was shut down by the U.S in 2012 for insider trading and manipulating Chinese stocks.

After getting banned from the investment advisory industry and a $44 million settlement with the SEC, Bill Hwang set up his family office, Archegos Capital.

Already with a history in crime, Bill Hwang’s family office was able to get away with several billions of dollars in stock positions due to the lack of regulatory measures.

The Archegos incident is currently known as one of the largest public margin calls in family offices, for now that is.

This shadow industry manages twice more assets than hedge funds registered with the SEC.

Family offices managing trillions in assets

Family Offices trillions in assets
Private offices own approximately twice in assets than hedge funds

Family offices are an unregulated corner of the financial marketplace with an estimated $6 to $7 trillion in assets under management (compared to $3.4 trillion in global hedge funds), via. Inequality.

Archegos revealed that family offices can create systemic risk due to their size, lack of regulation, and growing interest in ‘speculative investments’.

These growing interests in speculative investments may include the shorting of so called ‘meme stocks’ such as AMC and GameStop.

Hedge funds have been overleveraging their short positions in these stocks speculating the companies would go bankrupt shortly after the pandemic.

However, retail investors buying and holding the stock have caused hedge funds betting against these companies to lose billions of dollars.

To refrain from causing their clients further turmoil, we’ve seen an incredible amount of shorting happen in these stocks.

Anomalies in the stocks derive from either naked shorting, a network of unregulated trading, or both.

Hedge funds have used an array of loopholes to suppress the stock price of both AMC and GameStop to minimize consequential losses.

And the retail community is making a lot of noise.

Why aren’t these family offices regulated?

SEC

Those in favor of family offices believe light oversight is justified because these offices only serve private families.

Because they are not serving multiple clients, they believe these offices should not be subject to scrutiny.

Should these businesses be regulated and registered with the SEC?

I’d love to know your thoughts, leave a comment below.

The good news is that we have a New York Congresswoman by the name of Alexandria Ocasio-Cortez from the House Financial Committee, introducing a bill that would fight to regulate these family offices.

She’s introducing HR 4620, the Family Office Regulation Act of 2021.

After the massive liquidation from Archegos Capital, regulators are seeking to gain access to private information from these family offices in order to mitigate risk.

Hedge funds have incredible access to market manipulation

Market manipulation

Hedge fund industry expert, Charles Gradante has mentioned market makers are in favor of short selling.

In an infinite pool of access to capital from banks, the feds, and family offices, it’s going to take much more than the SEC to regulate the market.

New systems must be put into place, organizations, and activist groups to speak on the matter publicly.

The retail community holding ‘meme stocks’ has sparked a movement to raise awareness surrounding the market manipulation from all complicit parties.

These offices have also moved into the crypto market which could explain the massive liquidity we’re seeing today.

Hedge funds and private offices need to be regulated to prevent market manipulation and systemic risk.

While retail investors bet on the rise and well-being of a company, financial institutions suppress the growth of stocks, posing a major threat to our economy.

China banned Citadel Securities due to “malicious short-selling”, the United States needs to do the same thing.

These massive hedge funds have an incredible network to overleverage their short positions in emerging and growing companies.

Private offices create an extension for hedge funds to short stocks without reporting their positions to the SEC.

And while not all family offices are a loophole for hedge funds, the ‘ape community’ continues to be right.

Watch this video for additional context

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The links cited on this article come from a community member by the username of AMCBIGGUMS, covered below.

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