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U.S. SEC warns brokers to ‘remain vigilant’ to market, counterparty risk -Breaking

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© Reuters. Traders operate on the New York Stock Exchange (NYSE), Manhattan, New York City. REUTERS/Andrew Kelly

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By Katanga Johnson

WASHINGTON (Reuters] – The U.S. Securities and Exchange Commission warned broker-dealers and others in the market to be vigilant amid increased volatility and global uncertainty.

According to the agency, broker-dealers should closely monitor counterparty risk and collect “margin or collateral” from counterparties in order to stress-test their positions.

In the aftermath of Russia’s invasion in Ukraine, global stock and commodity markets were unusually volatile. There have also been a number of Western sanctions against Russia’s financial system as well as its oil exports.

Last week’s wild swings in oil and metal prices prompted more margin calls to clearing houses and trading companies. This forced counterparties to raise liquid collateral to protect their trades.

Sudden large margin call can cause financial stress to counterparties who do not have enough liquid assets.

“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,” the SEC said.

Regulators are more sensitive to issues with broker dealers’ counterparty risk management controls after several were left nursing around $10 billion in losses last year on derivative trades they had inked with New York family office Archegos.

On Monday, the SEC said that “concentrated positions” among prime broker counterparties “pose particular concerns” and that brokers should gather data to determine counterparties’ aggregate exposure, the SEC said

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