SEC raised concerns over hedge fund Rokos after losing bond bets

The US Securities and Change Fee has raised issues over Rokos Capital Administration after the hedge fund was pressured at hand over massive quantities of money to its banks as collateral when an outsized wager on US authorities bonds backfired earlier this month.

SEC chair Gary Gensler introduced up the hedge fund throughout calls with UK regulators this week after it confronted bigger margin calls than friends, in response to folks aware of the conversations.

The US regulator doesn’t supervise London-based Rokos however is on excessive alert for tensions in monetary markets after a spate of current blow-ups within the banking sector. UK regulators agreed to control the hedge fund, one of many folks mentioned.

The dialog factors to regulatory fears that the speedy unwinding of concentrated hedge fund bets might exacerbate strains within the US authorities bond market, which kinds the bedrock for asset costs world wide.

The episode stems again to the failure of Silicon Valley Financial institution earlier this month and issues across the broader well being of the US regional banking system. After SVB collapsed, buyers snapped up Treasuries, as they wager that the US Federal Reserve would sluggish the tempo of rate of interest raises to shore up monetary stability.

When bond costs climbed, many hedge funds have been wrongfooted within the rally, however trade contributors say Rokos was one of many largest short-term losers. The fund, which manages about $15.5bn, was down by 12.5 per cent for the month, the Monetary Instances reported on March 17, when a number of counterparties requested that it put up extra property to satisfy margin calls, mentioned two folks aware of the matter.

Nevertheless, counterparties contacted by the FT mentioned they weren’t involved about Rokos’s potential to satisfy the margin calls.

In contrast to many different macro hedge funds, which are usually extra diversified, the overwhelming majority of Rokos’s leverage is in authorities bond markets.

Billionaire Chris Rokos, who co-founded hedge fund Brevan Howard earlier than placing out on his personal, hit the headlines in late 2021 when he was caught out by an enormous sell-off in short-term authorities debt. He subsequently lowered the quantity of market threat he was taking and made greater than 50 per cent final yr, earlier than this month’s losses.

Rokos, the UK Monetary Conduct Authority, the Financial institution of England and the SEC declined to remark.

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