US SEC warns brokers to ‘stay alert’ to market and counterparty risk

WASHINGTON, March 14 (Reuters) – In a rare public warning, the U.S. Securities and Exchange Commission on Monday urged brokers and other market participants to “remain vigilant of 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 greatest extent possible” and test their positions.

Global equity and commodity markets have been exceptionally volatile following Russia’s invasion of Ukraine and a series of Western retaliatory sanctions against Russia’s financial system and its oil exports.

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Sharp swings in the prices of oil, metals and other commodities over the past week have generated more margin calls at clearinghouses and trading firms, forcing counterparties to cash out to obtain liquid guarantees that they must pledge to secure their transactions. Read more

Sudden and large margin calls can put financial pressure on counterparties that do not hold sufficiently liquid assets.

“Staff urge brokers to seek out sufficient information to determine aggregate counterparty positions in all markets that may experience liquidity issues and to work with counterparties to mitigate risk,” the SEC said.

Regulators are more sensitive to problems with counterparty risk management controls of brokers after several of them suffered losses of around $ 10 billion last year on derivatives transactions they had signed with Archegos, the New York family office.

On Monday, the SEC said “concentrated positions” among prime broker counterparties “pose particular concerns” and that brokers should collect data to determine aggregate counterparty exposure, the SEC said.

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Reporting by Katanga Johnson in Washington; edited by Michelle Price

Our standards: The Thomson Reuters Trust Principles.

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