The Sec issued an important statement today (March 14th, 2022) from the Division of Trading and Markets or (TM). The statement urges “broker-dealers and other market participants to remain vigilant to market counterparty risks that may surface during periods of heightened volatility and global uncertainties.” Below is a direct list of the statements issued today directly from the SEC.gov website.
- Broker-dealers should collect margin from counterparties to the fullest extent possible in accordance with any applicable regulatory and contractual requirements.
- Concentrated positions of prime brokerage counterparties pose particular concerns. Staff urges broker-dealers to seek sufficient information to determine counterparties’ aggregate positions in any markets that may experience liquidity concerns and work with the counterparties to mitigate risk.
- Staff urges broker-dealers to stress test positions with the proper severity in light of current events and potential market movements, and act to manage the risk of the positions, particularly those that are concentrated, appropriately.
- Staff urges broker-dealers to monitor risk management limits, calibrated to the financial resources of the broker-dealer, closely intraday and escalate any breaches promptly to senior management.
Volatility Index
As seen in the screenshot above, the $VIX or the Volatility index is up over 23% in the last month alone. The $VIX is defined as “VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options” – WIKIPEDIA
Risk Of Recession
The risk of an all-out global recession is still on the table. Investment analysts at Goldmans Sachs have cut their forecast for the Economy’s 2022 growth from 2.75% to 2% to 1.75%. The SEC is watching the situation closely and many of the overleveraged hedge funds could fact crippling margin calls if the market does not have a sharp turn around.
