SEC warns brokers to be 'vigilant' amid increased market volatility

The Securities and Exchange Commission is warning brokerages to be vigilant in watching out for trading risks amid increased volatility in global markets. 

The SEC’s trading and markets unit said in a statement Monday that firms should have “strong” risk management practices in place and that concentrated positions of prime brokerage counterparties “pose particular concerns.” 

Wall Street’s main regulator said that firms should stress-test trading positions in light of “current events and potential market movements.” Financial markets have been experiencing wild price swings as investors grapple with rapidly changing geopolitical developments following Russia’s invasion of Ukraine.

Brokerages should also collect margin from counterparties as much as possible, and make efforts to determine their aggregate positions, the SEC staff said. 

Brokerage counterparty risk became a major concern for the SEC last year when the implosion of Bill Hwang’s family office, Archegos Capital Management, triggered the sales of billions of dollars in equities and steep losses for major Wall Street firms. In December, the regulator released a plan that would place additional restrictions on firms trading security-based derivatives. 

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