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{{quote|''Archegos’s long bias was driven by the evolution of its swaps portfolio. Given the substantially reduced swap margin, Archegos began putting on long swaps (at the new lower margin) with CS, whereas it had historically held its long positions in Prime Brokerage (at a higher margin rate). The lower swap margins—which Archegos assured CS were “pretty good” compared to what its other prime brokers required—no doubt led Archegos to trade more swaps with CS, and Archegos’s holdings at CS increased markedly.''}} | {{quote|''Archegos’s long bias was driven by the evolution of its swaps portfolio. Given the substantially reduced swap margin, Archegos began putting on long swaps (at the new lower margin) with CS, whereas it had historically held its long positions in Prime Brokerage (at a higher margin rate). The lower swap margins—which Archegos assured CS were “pretty good” compared to what its other prime brokers required—no doubt led Archegos to trade more swaps with CS, and Archegos’s holdings at CS increased markedly.''}} | ||
Here is a sort of [[convexity]] risk: If you offer the most favourable terms on the street, then customers will tend to put their positions on with you. If your swap margins are lower than your | Here is a sort of [[convexity]] risk: If you offer the most favourable terms on the street, then customers will tend to put their positions on with you. If your swap margins are lower than your [[cash brokerage]] margins, your customers will tend, [[all other things being equal]], to put their positions on swap. Water runs downhill. | ||
You read variations of the following a ''lot'' in the Archegos report: “if we increase margins [to risk-acceptable levels], we will lose the business”. Indeed, you will hear variations of that theme, every day, uttered by anxious [[salespeople]] in every brokerage in the City. Salespeople ''would'' say this: their ''role'' is to say things like this: they speak for their clients, and their own bonus prospects, at the table where business is discussed. But others at that table — notably risk — should be taking the other side of that conversation. | You read variations of the following a ''lot'' in the Archegos report: “if we increase margins [to risk-acceptable levels], we will lose the business”. Indeed, you will hear variations of that theme, every day, uttered by anxious [[salespeople]] in every brokerage in the City. Salespeople ''would'' say this: their ''role'' is to say things like this: they speak for their clients, and their own bonus prospects, at the table where business is discussed. But others at that table — notably risk — should be taking the other side of that conversation. | ||