Disclosure deficiencies

By using swaps, Archegos was able to avoid the Securities and Exchange Commission’s disclosure rules, which require investors to report their holdings if they acquire more than 5% of a company’s shares. Those rules did not apply to Archegos because it amassed its stakes using derivatives, rather than purchasing the shares directly. That allowed the fund to keep its positions largely hidden, even from its prime brokers, who seemed to be caught off guard by the scale of Archegos’s holdings when it defaulted. To understand how large and concentrated Archegos’s positions were, Risk.net has analysed the regulatory disclosures of its six main prime brokers, which bought the stocks as hedges against the derivatives trades. The banks’ 13F filings show their holdings of eight core stocks linked to Archegos increased from $3.8 billion at the end of the first quarter of 2020 to $7.4 billion on June 30. By year-end, this had jumped to $26.4 billion.

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