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Why wouldn't the Prime Broker just force you to sell it, instead of blocking all trades? I understand that they could dislike the position because it's moved en

by czinck 7y ago

Why wouldn't the Prime Broker just force you to sell it, instead of blocking all trades? I understand that they could dislike the position because it's moved enough to bankrupt you already, or unloading it could move the market even more against you, but that's gotta be better than just holding on to it longer.

JumpCrisscross 7y ago
> Why wouldn't the Prime Broker just force you to sell it One, that could result in a fire sale. Freezing is safer than forcing liquidation. If your liabilities outweigh your assets, the latter are the PB's; getting pennies on the dollar instead of dimes is against their interest. Two, the client may be able to post collateral. You don't want to lose an institutional relationship because you were trigger happy. Three, you might have made a mistake. Freezing the position until you get your facts straight is prudent in most markets.
seanhunter 7y ago
They can't force you to close the position - they "Don't Know" (DK) the position. ie there is a dispute with you for whatever reason that you actually have that position and nothing can be done either way until this is clarified. If they are right, making you put on a trade to close the position they don't think you have will actually put you into a position of equal size in the other direction. eg: You are my pb and I think I'm long 20 S&P e-mini futures. You don't know that trade so think I'm flat. If you make me "close" my position and you're right then I'm actually now short 20 futures. This type of situation can happen a lot more easily than you might think especially in markets where there are multiple trading channels (eg voice and electronic) and settlement instructions etc can go wrong. One place I worked we had a trade be DKd because the instructions were sent by fax and needed to be confirmed by voice. The pos Solaris printer driver used to leak memory so one day it leaked so much memory that it just fell over and died and one of the trade confirms wasn't printed out, therefore the human who had the shitty job of picking them up off the printer and calling the other side to confirm the trade didn't confirm. 5m dollars right there.

by czinck 7y ago

JumpCrisscross 7y ago

> Why wouldn't the Prime Broker just force you to sell it One, that could result in a fire sale. Freezing is safer than forcing liquidation. If your liabilities outweigh your assets, the latter are the PB's; getting pennies on the dollar instead of dimes is against their interest. Two, the client may be able to post collateral. You don't want to lose an institutional relationship because you were trigger happy. Three, you might have made a mistake. Freezing the position until you get your facts straight is prudent in most markets.

seanhunter 7y ago

They can't force you to close the position - they "Don't Know" (DK) the position. ie there is a dispute with you for whatever reason that you actually have that position and nothing can be done either way until this is clarified. If they are right, making you put on a trade to close the position they don't think you have will actually put you into a position of equal size in the other direction. eg: You are my pb and I think I'm long 20 S&P e-mini futures. You don't know that trade so think I'm flat. If you make me "close" my position and you're right then I'm actually now short 20 futures. This type of situation can happen a lot more easily than you might think especially in markets where there are multiple trading channels (eg voice and electronic) and settlement instructions etc can go wrong. One place I worked we had a trade be DKd because the instructions were sent by fax and needed to be confirmed by voice. The pos Solaris printer driver used to leak memory so one day it leaked so much memory that it just fell over and died and one of the trade confirms wasn't printed out, therefore the human who had the shitty job of picking them up off the printer and calling the other side to confirm the trade didn't confirm. 5m dollars right there.