SEC seeks companies like Archegos to reveal swap positions

US regulators seek to prevent hedge funds and family wealth managers from using complex derivatives to secretly accumulate large stakes in public companies – the kinds of operations that fueled the collapse of Archegos Capital Management.

The United States Securities and Exchange Commission (SECthis week) proposed new rules this week that seek to address a huge regulatory blind spot that came to light in the aftermath of the implosion of the law firm. Bill Hwang Earlier this year: Stock-based swaps that can be used to quietly build massive bets on companies.

The new rules the agency outlined on Wednesday require more disclosures and place additional restrictions on companies trading these derivatives.

Positions worth at least $ 300 million, or the equivalent of 5% of shares that trade in an underlying security, would trigger new SEC reporting requirements.

Investors will have to disclose their identities, positions in the underlying swaps and securities, as well as related loans, according to the SEC.

The agency will also require reporting for large positions involving bonds and credit default swaps, known as CDS.

The SEC has wavered for years in reviewing the rules for derivatives, despite being required by Congress in 2010 to regulate the asset class.

The agency’s new plan will prohibit individuals involved in stock-based swap trading from attempting to manipulate prices or trade inside information.

Money Market Mutual Funds

Meanwhile, the SEC also proposed new rules for money market mutual funds that should prevent the kind of exits that occurred in March 2020 when the onset of the pandemic shook the markets.

That shock prompted the Federal Reserve to step in and bail out money market funds for the second time in 12 years, prompting requests that the SEC tighten regulations.