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Who Was Behind Friday's Massive Block Trades?

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Who Was Behind Friday's Massive Block Trades?

The buzz around Friday's mysterious block trades continues to grow ahead of the new trading week, as traders hold their breath, wondering if the sales were a one-off event or if there is more to come on Monday.

What Happened: Speculation has been rampant all weekend over whether one or more hedge funds or family firms started unraveling last week and was forced to liquidate, triggering block trades that affected a diverse range of shares.

Block trades typically are negotiated privately between two parties and involve a large number of shares. They are not uncommon, but the especially large size of these trades drew attention.

Bloomberg and the Financial Times reported that the sales, executed separately by Goldman Sachs group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS), amounted to about $20 billion worth of shares in total. The sales were executed in five blocks, FT said.

The speculation began with a posting by IPO Edge on Friday pointing a finger — albeit loosely — toward Archegos, citing unnamed sources. Other outlets soon followed with similar reports, also based on people familiar with the matter.

Then this afternoon, Bloomberg and the Financial Times each published stories saying more definitively that Archegos Capital was behind the trades, again citing unnamed sources.

Archegos is the family office of Bill Hwang, a so-called "Tiger cub," as acolytes of Julian Robertson's Tiger Management hedge fund are known. Hwang was busted on charges related to illegal trading of Chinese bank stocks and pleaded guilty in 2012, according to Reuters.

The Financial Times reported that the $3 billion equity raise announced by ViacomCBS on Monday, when the stock was at an all-time high, may have triggered everything. The company's share price took a dive in the days following the announcement, which also included an analyst downgrade. The share-price fall caused one of Archegos' prime brokers to demand a margin call from Archegos, and then other banks followed suit, FT reported. "Traders buying the large blocks of stock were told the share sales had been prompted by a 'forced deleveraging' by a fund," the newspaper said.

Archegos did not return FT's request for comment, and Archegos' top trader in New York hung up when the paper contacted the trader, FT said. Archegos' website also is down.

Shares Affected: The sales at first seemed centered on shares of Chinese companies listed in the U.S., sparking speculation that the moves were connected to the possible delisting of Chinese companies in the U.S. amid tensions between the two companies. Former U.S. President Donald Trump signed a bill in December calling for the delisting of foreign companies that don't follow the same accounting transparency standards that U.S. firms must follow, in a move aimed at Chinese companies listed in the U.S.

But Friday's block sales spread to companies based in the U.S. and other countries.

The slew of other stocks hit by the block sales include:

  • ViacomCBS, which trades as CBS Corporation Common Stock (NASDAQ: VIAC)
  • Discovery Communications (NASDAQ: DISCA)
  • Shopify Inc (NYSE: SHOP)
  • Farfetch Ltd (NYSE: FTCH)
  • Baidu Inc (NASDAQ: BIDU)
  • Tencent Music Entertainment Group (NYSE: TME)
  • Vipshop Holdings Ltd (NYSE: VIPS)
  • IQIYI Inc (NASDAQ: IQ)
  • GSX Techedu Inc (NYSE: GSX)

While Archegos is being pointed out as the main culprit, it is still unclear if its fire sale is over — and if other firms are right behind it.

Image by Arek Socha from Pixabay.

 

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