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11-22-2011 08:08 AM
It appears to me that this topic is going to run on for a while and I thought I would share my opinion.
It is a disaster. A "Tylenol type' moment. How the exchange and regulators handle this will be studied in business school for a long time.
We have an opportunity to either bolster good sentiment or set the industry back decades.
I am not sure what the exchange can do to give its customers some confidence in the system but if they don't they risk losing their franchise. While the 'system' worked and we didn't melt down on a shadow bank failure, there will be higher costs for everyone going forward.
The regulations the will ultimately be enacted will make it more expensive for us to trade. MF Global was a very aggressive clearing firm in so far as price so clearing elsewhere will most certainly be more expensive. A more nervous and more expensive trading environment does not bode well for business.
How long till the trade puts all this behind us? What will all the final segregated losses be?
Only time will tell.
11-22-2011 08:14 AM
I don't know how they will handle it. I doubt the CME has 600,000 laying around to make people whole, let alone the new 1.2 billion dollar figure. I wonder if the Minneapolis, or Kansas City exchange can replace Chicago as the exchange of choice.
11-22-2011 08:44 AM
If the occupy wall street crowd wants a poster child of what is wrong, here is your "man." Jon Corzine. Goldman Sachs, U.S. senator, govenor, and head of MF Global. I wonder what MF stands for, hee hee. This man is scum. I was watching Jon Stewart last night make fun of Corzine, showing all his blow hard crap when he was a politician in 2008-10 regarding regulation and "leverage." Stewart was very funny, I think I laughed until I cried. One thing he pointed out was Lehman was leveraged at 33 to 1 and MF was leveraged at 40 to 1. In light of Corzine's comments on regulation and leverage, it is unreal. Add to that, apparently, given Corzine's connections, he was able to get the regulators off his back about his highly leveraged positions in europe and lack of collateral, which they knew about for some time. Does anyone believe there is only one corzine in washington, and or wall street? More is to come, they never learn...
11-22-2011 10:56 AM - edited 11-22-2011 10:56 AM
People should already be in jail over this, so why aren't they? Also if the 7th largest FCM can steal from the public or be using your funds, then why wouldn't more of the same be going on throughout the industry? I never did like the idea of the FCM sweeping money every night to gain interest. That always seemed crooked to me.
As for higher trading costs, there will always be a firm like Velocity Futures where you can do round turn futures trades for under $5. Is your Full Service Broker really worth the $55 or $75 they charge you?
|11||Futures Commission Merchant||B/D||Customer Segregated Funds $|
|01||GOLDMAN SACHS & CO||23,320,222,623|
|02||NEWEDGE USA LLC.||22,042,391,645|
|03||JP MORGAN FUTURES INC||19,825,633,184|
|04||UBS SECURITIES LLC||16,298,886,579|
|05||CITIGROUP GLOBAL MARKETS INC||16,262,378,349|
|06||MERRILL LYNCH PIERCE FENNER & SMITH||9,672,811,504|
|07||MF GLOBAL INC.||7,676,938,871|
|08||DEUTSCHE BANK SECURITIES INC||6,959,500,455|
|09||BARCLAYS CAPITAL INC||6,607,685,707|
|10||MORGAN STANLEY & CO INCORPORATED||5,770,622,763|
11-22-2011 11:05 AM - edited 11-22-2011 11:06 AM
I use to work for First Chicago, many years ago before it became JP Morgan Chase and my market was all the Future Commission Merchants (FCM's) and the security firms and the entire country, Mexico. Our cash management accounts swept money into overnight investments Cayman accounts. Could you imaging the chaos if money did not get returned the following morning? WOW.
11-22-2011 11:09 AM
I've always found it a bit comical that when I owe margin money in, they want it immediately. When it is in excess of 10 grand, they want it wired. However, it takes sometimes weeks to get my money back when I request it. The larger the money I request from my account, the longer it takes. I waited nearly three weeks one time for a check in the triple digits. I'm guessing what is meant by making it more expensive to trade deals a lot more with initial margin than it does for commissions. It wouldn't shock me that it eventually will cost roughly 50 percent of the underlying commodity value for initial margin. Right now for a hedge account, corn iniial margin is less than six percent. If the hedge funds do what they advertise meaning they put full face value per each contract, this shouldn't affect them at all.
11-22-2011 11:17 AM - edited 11-22-2011 11:38 AM
"put full face value per each contract"
That would be a nail in the CME's coffin. One thing is for sure, the volume can go down over the holidays, but since this happened, Dec volume could be a joke. This is what happens when Trust in the system is broken or regulators don't do their job.
Good Job CME!
11-22-2011 02:43 PM
Saw a good analogy from another analyst today:
"You may buy a Rolls Royce with customers’ excess cash, sell it at a profit, and pocket part of the profits. You may buy a Rolls Royce and try to resell it at a profit with your firm’s cash. But you aren’t allowed to take customers’ money to make the car payments on your firm’s Rolls Royce," she says. "If one engages in this impermissible activity, it becomes almost impossible to cover up if you have an accident driving your Rolls Royce."