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A Glossary to Understand the Collapse of Archegos
A Glossary to Understand the Collapse of Archegos
31 Mar 2021, 09:05 PM IST 
(Bloomberg) -- 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:
| Term | Definition | What happened? |
|---|---|---|
| BLOCK TRADES | Large 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 CALL | By 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 SWAPS | Agreements 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 DIFFERENCE | A 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 OFFICE | The 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. |
The Reference Shelf
- Billions in derivatives at the center of the blowup.
- QuickTakes on family offices and contracts for difference.
- One of the world’s greatest hidden fortunes is wiped out in days.
- The ‘unprecedented’ block trade spree.
- Margin Call -- the 2011 movie.
©2021 Bloomberg L.P.
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