18 Apr 2008, Alexander Campbell, Risk magazine
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.
© Incisive Media Investments Limited 2014, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093