Hong Kong plans new risk control measures to prevent Archegos-style collapse

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Bill Hwang update

According to two people familiar with the matter, the Central Bank of Hong Kong and the top financial regulator are developing a system to track dangerously concentrated stock exposures as part of efforts to prevent Archegos Capital-style explosions.

The project was launched after the collapse of the family office run by Bill Hwang and will use a centralized transaction database to identify excessive risk-taking by banks and investment funds trading derivatives in the Hong Kong market.

People familiar with the matter said that the project has attracted the attention of U.S. regulators, and the U.S. Archegos crash April is the most spectacular year on Wall Street in ten years.

Huang made a high leverage bet of up to 50 billion U.S. dollars on the stocks of a few US and Chinese companies through derivatives called total return swaps, causing his lenders to lose 10 billion U.S. dollars when the stocks fell. Losses include Credit Suisse’s $5.4 billion; Nomura’s $2.9 billion; Morgan Stanley’s $911 million.

The incident has resulted in Accuse Eight banks provided Archegos with tens of billions of dollars in leverage and prompted regulators in the United States, the United Kingdom, and Switzerland to investigate its risk control.

Archegos has hired a restructuring consultant to prepare May go bankrupt Because the bank threatened to file a lawsuit to try to make up for some of the losses.

As part of the reforms following the global financial crisis, the Hong Kong Monetary Authority and the Securities and Futures Commission introduced in 2013 a requirement for banks to report over-the-counter derivatives transactions to a central registry called a transaction repository.

The latest project involves a lengthy data cleansing process and the creation of a system to flag centralized risks to regulators. The regulators will then remind financial institutions that these risks are expected to be mitigated. A person close to the project said that it can “solve” the Archegos problem.

The HKMA is the de facto central bank of Hong Kong. Its mission is to control inflation and maintain the stability of Hong Kong’s monetary and financial system. The Monetary Authority declined to comment. Hong Kong’s financial regulator, the Securities Regulatory Commission, declined to comment.

Huang was banned from trading in Hong Kong for four years in 2014 and became a notorious figure in Hong Kong. Huang’s previous hedge fund Tiger Asia Management Company admitted to using inside information to trade Chinese bank stocks in Hong Kong and the United States. This case is the first time that the Securities Regulatory Commission has directly filed a case with the Hong Kong Market Misconduct Tribunal.

Archegos was established after the United States and Hong Kong were sanctioned, which means that he could not manage funds for external investors. When it was liquidated in April, there were almost no transactions on Chinese territory.However, the Archegos incident triggered a global Oversight of the family office, In Hong Kong, some of Asia’s wealthiest families manage their estates.

It also draws attention to the slow pace of regulatory reform, which will be more closely monitored Derivatives transaction disclosure In the U.S.

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