US SEC warns brokers to “stay vigilant” on market and counterparty risk

WASHINGTON, March 14 (Reuters) – In a rare public warning, the U.S. Securities and Exchange Commission on Monday told brokers and other market participants to “remain vigilant about market and counterparty risk.” amid increased volatility and global uncertainties.

The agency urged brokers to closely monitor counterparty risk, collect “margin” or collateral from counterparties to “the fullest extent possible” and test their positions.

Global stock and commodity markets have been unusually volatile in the wake of Russia’s invasion of Ukraine and a series of retaliatory Western sanctions on Russia’s financial system and its oil exports.

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Sharp swings in oil, metals and other commodity prices last week prompted more margin calls at clearinghouses and trading firms, forcing counterparties to run out of money to build up liquid collateral they must pledge. to secure your operations. read more

Large and sudden margin calls can create financial stress for counterparties that do not have sufficiently liquid assets.

“The staff urges broker-dealers to seek sufficient information to determine counterparties’ aggregate positions in any market that may experience liquidity problems and work with counterparties to mitigate risk,” the SEC said.

Regulators are more sensitive to problems with broker-dealers’ counterparty risk management controls after several were left with losses of around $10bn last year on derivatives trades they had signed with the bureau. family Archegos of New York.

On Monday, the SEC said “concentrated positions” among brokers’ major counterparties “raise particular concerns” and that brokers should collect data to determine the aggregate exposure of counterparties, the SEC said.

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Reporting from Katanga Johnson in Washington; edited by Michelle Price

Our standards: the Thomson Reuters Trust Principles.

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