What is a Total Return Swap and How Did Archegos Capital Use it?
NBA 5430
Financial Markets and InstitutionsMaterial Details
DescriptionArchegos Capital Management's use of total return swaps, a derivative allowing investors to take on the profits and losses of a portfolio in exchange for a fee, played a significant role in its recent market turmoil. These swaps enabled Archegos to leverage its positions significantly, managing around $10 billion of its own money but holding positions worth approximately $30 billion. The swaps allowed Archegos to maintain anonymity and increase leverage, but also exposed the firm to substantial risks. The lack of transparency and regulatory scrutiny around these derivatives has been a point of contention, with critics arguing that they increase market risk and leverage. The Securities and Exchange Commission (SEC) is close to implementing new regulations to improve oversight of such swaps.PublisherThe Wall Street JournalPublished2021
Additional Information
CompanyArchegos Capital ManagementIndustryFinancial ServicesSectorPrivateHeadquartersYesFortune 500NoProtagonistYesPersonNo