Microsoft reuses its OpenAI playbook with Inflection takeover | Hacker News Reader

Microsoft reuses its OpenAI playbook with Inflection takeover

theverge.com

20 pointsisaacfrond6 comments

This and the OpenAI relationship seems the equivalent of using Credit Default and Total Return Swaps in finance to 'hide' effective ownership of the underlying asset. It's hard to see how the regulators won't investigate.

They're already investigating the OpenAI affair. The question is whether they'll be able to do anything about it.

CDS don't hide ownership, they're insurance against a bond defaulting. You can use them to short a company's bonds too, which is otherwise extremely difficult as bonds aren't lent like equities.

TRS also aren't really used to hide ownership but to get economic exposure when you can't actually own things for whatever reason. The Archegos collapse was mostly a risk management fault at Credit Suisse unrelated to the means they got that exposure through. Archegos's other prime brokers mostly liquidated their positions with no losses. TRS are transparent to your broker and to regulators

> TRS also aren't really used to hide ownership but to get economic exposure when you can't actually own things for whatever reason

In the Archegos case the "whatever reason" was at least partially (as well as getting extra leverage) so that ownership didn't need to be reported to the SEC - allowing them to 'own' 50%+ of the shares of several companies and manipulate the price without the market knowing.

Item 30 and 58 of the SEC complaint: https://www.sec.gov/files/litigation/complaints/2022/comp-pr...

I agree they shifted to avoid the reporting requirement but I don't believe they did that cynically to manipulate prices, mainly because it's unclear to me that anyone has suggested a possible exit from their positions that made them any money. Archegos is a family office, so it's not fees. It's not generally possible to make a profit pushing the price up by buying as the price will collapse faster than you pushed it up. (Absent external demand as in a pump and dump.)

I suspect the intent behind the position disclosure is so control is disclosed, not economic exposure. The design of the regulatory system in the US is that you're either regulated and thus have a lot of responsibility and reporting requirements, but you get better access to the market (Archegos's brokers); or you're 'unregulated' and have less (but access the market through a regulated company).

Also you don't usually get different margin treatment through TRS than you would through normal ownership. If you do, your prime broker is doing something stupid. Your TRS is a contract with them, they tend to just go buy the shares to hedge so it's usually exactly the same as buying your long through them (except you can't vote your shares, you don't get dividends and you can't lend your shares).

https://archive.ph/AsGYa

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