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11-Oct-2020 12:06

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By mid-April, “further price declines had moved some accounts from house calls to NYSE calls” that “have strict deadlines and serious consequences.” Under applicable industry regulations, CLK had no choice but to close out any losses by May 15, 2012.Its earlier margin calls were too small to impact prices and it went to great lengths to avoid negatively impacting prices when it closed out the positions, attempting to arrange a private sale of the long positions and, when it could not find another buyer, CLK’s current president, Candace Weir, bought them on her own account at a fair price and significant loss to herself.Respondent’s Story CLK “fully understood that under NSB’s Strategy a substantial increase in the long market value of the stock positions in 2011 …required a in the strategy’s “coarse hedge,” i.e., additional short index options had to be written” (emphasis in the original), but Nicklin increased the hedge, ordinarily 20% of equity, to 43% of equity by February 2012, during a bull market, greatly increasing the margin debt.In 2009, CLK entered into a Service Agreement with NSB, under which the former provided custodial services for the latter’s customers, and CLK encouraged NSB’s plans to grow during their relationship.CLK should have known that NSB’s option hedging strategy would cause short call debt to grow as the business grew, but it never disclosed the risk that a failure by CLK to increase its net capital to accommodate this debt would force liquidation of holdings in NSB customer accounts, depressing the value of those holdings.Their purpose is to separate illiquid, hard-to-value, and often highly risky assets from other, more liquid assets.

BA former star trader for Steve Cohen's SAC Capital has found less success with his post-SAC venture.

In fact, CLK never had any financial difficulties; its concern was the regulatory risks from the large margin debts.