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operational support standpoint .
“ Really at the end of the day , you have folks that were less attractive to the mid-tier and bulge bracket firms in the aftermath of those things , and that ' s where we think it ' s going to be important for emerging energies and start-up managers to really evaluate what it is that they ' re getting from their prime broker .”
Regulatory intervention ? The past 18 months – inclusive of Archegos and the memestock short squeeze – has put the prime brokerage space on the radar of regulators . How could it not . Gary Gensler , the head of the US Securities and Exchange Commission ( SEC ), was already on a lengthy warpath in the name of transparency , and recent events will flag up the industry to him like a giant beacon of light . Given that at the centre of Archegos was the use of total return swaps – a derivative the SEC oversees rather than its counterpart the CFTC due to the securities link – Gensler and co are ramping up reporting requirements for 47 conditionally registered security-based swap dealers . The rules include new counterparty protections , requirements for capital and margin , internal risk management , supervision and chief compliance officers , trade acknowledgement and confirmation , and record-keeping and reporting procedures .
Adding fuel to Gensler ’ s flame , the European Securities and Markets Authority ( ESMA ) published a study in May this year , analysing the March 2021 default of Archegos , ultimately claiming that its study showed some of the ways in which extensive data collected by trade repositories under can be used by NCAs , central banks and ESMA itself , to monitor risks .
Although at the time it was difficult to predict the collapse , due to the fact that Archegos was able to avoid reporting requirements , ESMA ’ s study used data from EMIR to analyse Archegos positions and to demonstrate the possibility of tracking the steep increase in concentrated exposures that the family office undertook in February and March last year .
ESMA confirmed that it was the use of total return swaps through synthetic prime brokers that enabled Archegos to avoid revealing its positions to regulators , while also building up leverage which a traditional position developed through a cash prime broker would not have allowed .
“ Overall , Archegos operations were largely invisible to regulators and market participants ( being swap counterparties ),” said ESMA . “ As a family office , Archegos was exempted from reporting requirements to the Securities and Exchange Commission
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