The Securities and Exchange Commission (SEC) recently adopted final rules on money market (2a-7) fund reforms. These reforms are designed to make money market funds more resilient and liquid, potentially making them safer and more attractive vehicles for mutual funds to use as collateral pools for their securities lending programs.
 

By Ed Blount and Dan Hammond

“In a matter of days, the companies at the center of Archegos’s trading scheme lost more than $100 billion in market capitalization,” Archegos owed billions of dollars more than it had on hand, and Archegos collapsed.” 

This blog tells the untold story of how securities lenders in March 2021 became more than simply a source of liquidity to markets. Lenders became a market posse. Lawsuits dominated the business news about the collapse of Archegos Capital,  but nothing was reported about the chain of contractions that was set in motion by securities lending agents and custodians. It was their automated ceiling on total credit extension – share inventory buffers -- that led, in a very short time, to the traders’ discovery, surveillance and opposition to Archegos’ massive fraud and manipulation.  With a dataset of more than 225 million securities loans, we evaluated how the market responded to the Archegos’ manipulations. According to the SEC charges, the "relevant period" of the manipulation covered fewer than 150 days. During that time, more than 175,000 loans were made for equities of CBS Viacom (VIAC). We have chosen that issue as an example for our study.