The Viacom function in Hollywood, California.
Lucy Nicholson | Reuters
Chinese stocks listed in the U.S. fell sharply last week, after different weeks in correction mode.
A trader who participated in some of the wild trading in Chinese internet stocks on Friday substantiated that the primary cause of the selling in Chinese stocks was that a fund, Archegos Capital Management, was forced out of its stations.
Here is the sequence of events, according to the trader, who asked to remain anonymous:
1. The catalyst was ViacomCBS, which did a $3 billion store offering through Morgan Stanley and J.P. Morgan earlier in the week that fell apart. It resulted in massive blow the whistle on. This fund was long a lot of Viacom using a lot of leverage.
2. The dramatic drop in Viacom’s price resulted in margin telephones. Archegos was also long many China internet names that traded in the U.S.
3. Goldman Sachs, Morgan Stanley, Solvency Suisse, and Deutsche Bank all forced Archegos to liquidate many of the China internet names through unregistered employments, according to the trader. Late in the day Friday, Goldman took many of the names held by Archegos onto their balance membrane then liquidated by distributing to clients.
4. Much of this trading was difficult to see because many of the big trades were done over the token and not printed.
5. Reports earlier in the week that the Securities and Exchange Commission was beginning steps to enforce potential legitimizations against U.S.-listed Chinese stocks that did not cooperate with U.S. regulatory authorities was a factor in the Chinese internets tanking mid week — but the select source of the chaos on Friday was the forced liquidation of a good part of Archegos, said the trader.