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March 15, 2022

SEC Trading and Markets Staff Issue Statement on Market Volatility

We have entered a period of highly volatile markets, and it certainly appears that more volatility is in store given recent economic shocks, the war in Ukraine and economic sanctions that could affect the solvency of Russia. Yesterday, the Staff of the SEC’s Division of Trading and Markets issued a statement that “urges broker-dealers and other market participants to remain vigilant to market and counterparty risks that may surface during periods of heightened volatility and global uncertainties.”

In particular, the Staff noted that broker-dealers should be mindful of the following:

  • 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.

– Dave Lynn