MF Global reveals new safeguards

After losing $141.5 million to a single rogue trader, New York commodities broker MF Global has revealed the new internal controls intended to stop it happening again.

In a few hours, the trader, Evan Dooley, was able to put a massive short position in Chicago Board of Trade wheat futures on his personal account. Normally, electronic trades would have been monitored to keep them within client trading limits, but MF Global had deliberately disabled the safeguards on its internal trading terminals to speed up order processing, and was left liable for the losses Dooley incurred.

The company employed two consultancies to repair the damage. Technology specialist FTI Consulting has restored and tested the trading controls on the broker's Order Express entry system. Promontory was given the task of assessing the firm's risk management in general.

As a result, MF Global says it has now improved its risk monitoring systems, and recruited more risk specialists, especially those on duty outside normal working hours - Dooley put his trades on early in the morning of February 27. The company has also restructured its risk management department and will recruit a chief risk officer, who will now report directly to chief executive Kevin Davis.

MF Global says it expects to report a net loss before tax of $55-65 million for the fourth quarter of the financial year, mainly due to the provision for Dooley's losses.

See also: Troubled broker names new CFO 
Bushel-whacked
MF Global sacrificed risk protection for speed, CEO says 
Rogue trade loses MF Global $141.5 million

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here