InvestorQ : How did the big brokers lose so much money in Archegos Capital?
sara Kunju made post

How did the big brokers lose so much money in Archegos Capital?

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Mary Joseph answered.
8 months ago
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I think you are referring to Credit Suisse writing off losses of $4.7 billion in Archegos. That is because these are prime brokers and not just execution brokers. Let us look at Archegos first. It was actually a risky hedge fund in the guise of a family office. Bill Hwang used the less regulated family office route to take big risky bets. That is because the family offices are not stringently regulated by the US SEC under the Dodd Frank Act applying to public money.

Why did prime brokers like Credit Suisse bite more than they could chew? Prime brokers are banks that execute trades and also structure and fund it. It is the most profitable side of the broking business since they earn fixed fee, plus the interest on funded part. As competition heated up for the Archegos business, prime brokers got lax on risk management and collection of collaterals. This is what set off the crisis at Archegos.

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