Wall Street watchdog to scrutinize risky derivative products

The chair of the U.S. Securities and Exchange Commission warned on Wednesday that the agency may bring more enforcement actions in cases involving risky derivatives, saying such products can create “systemwide risks” during times of market stress.

Last month, the agency brought charges against Bill Hwang, the owner of private fund Archegos, and other executives, alleging they engaged in fraud and market manipulation to create huge exposures to a handful of stocks using sophisticated equity swaps.

“Market participants’ use of derivatives touch so many parts of our markets, from SEC registered funds wrapping these products in publicly offered strategies, to numerous private funds using derivatives at significant exposure levels,” SEC Chair Gary Gensler told an industry audience on Wednesday, citing recent enforcement actions against risky use of these products.

“There may be more (enforcement actions) to come.”

Separately, Gensler also warned that swaps based on cryptocurrencies would generally be considered reportable security-based swaps under its rules.