A Glossary to Understand the Collapse of Archegos


Understanding the sudden losses made by Bill Hwang’s Archegos Capital Management requires a grasp of some of the more abstract language in financial markets. Here’s a list of terms to help readers unpick the story:

TermDefinitionWhat happened?
BLOCK TRADESLarge securities transactions that are often negotiated outside of public markets or in so-called dark pools, to avoid driving prices up or down in the course of executing the trade.A flurry of super-sized block trades in companies such as ViacomCBS Inc. signaled that trouble was afoot.
MARGIN CALLBy using borrowed money -- by trading “on margin” -- investors can ratchet up their gains from a transaction, or their losses. The brokers or banks who finance that “leverage” require a deposit that can be increased if the value of the asset in question falls. A demand for increased collateral is known as a margin call.One of the greatest margin calls of all time on Archegos led to the liquidation of more than $24 billion in stocks ranging from Chinese technology firms to U.S. media giants.
TOTAL RETURN SWAPSAgreements in which an investor (say a hedge fund) pays a set rate (e.g. Libor) to another party, which in exchange makes payments based on the return (income and capital gain) of an underlying asset it owns, like a stock. If the asset depreciates, the investor must cover the loss.Archegos was able to build sizeable stakes in companies without the market knowing because the assets were held on the books of its brokers.
CONTRACTS FOR DIFFERENCEA financial product that allows someone to make a bet on the direction of stocks, currencies or commodities without owning them. Investors use borrowed money, or leverage, to magnify the size of their bets.This is another of the tools Archegos was thought to have used that obscured its accumulation of significant stakes in companies.
FAMILY OFFICEThe loosely regulated, privately owned companies that manage vast amounts of money for wealthy clans. Families usually need at least $500 million to set up a full-service office with investment staff.Looser oversight may have played a part in Archegos -- Hwang’s family office -- failing to set off alarm bells.

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