MF Global clients asked to take a hike

FT Alphaville has a report that MF Global [where I once worked] has hiked its margin rates considerably. Under the heading "MF Global Reiterates Strong Liquidity Position (and tells clients to get lost)" it notes that

And when we say “hike” we mean a move, typically, from 25 per cent to 75 per cent or more. In fact, for UK small caps the requirement is now 90 per cent.

Those most notably affected are thousands of traders and speculators using CFDs, who have either had to deposit extra funds immediately, move their business elsewhere or liquidate their positions. And then there is MF’s own army of brokers - many of whom are on substantial commission arrangements and who have now lost much of their client base overnight.
According to well placed market sources, this has added “meaningfully” to some of the unexpected price swings seen across the London market in particular over the past 24 hours.

This is an interesting development for the following reasons:-
For the desk heads of the products affected e.g. CFDs, this will be a nightmare for their business, which they have developed and nutured over many years. Inevitably, these hikes will harm their P&L on which they are judged and bonuses paid [always a sensitive matter]. Even a reversal of the policy in a few weeks time, will not restore all of the business lost and whilst its' "quality" may be debated in some quarters, it will have wider implications. For example
For these reasons it will have undoubtedly been a hotly contested matter internally but evidently the senior executives decided the solvency of the firm and perceptions about it necessitated such action.

UPDATE: For whatever reason, FTAlphaville have removed the blogpost, which is almost unheard of. Of course, the post is already floating across the internet via rss, and so it's still showing in my Google Reader. Either they got the story completely wrong or someone didn't like its' tone. Meanwhile, CityIndex has also raised its' margin requirements to 10% on FTSE100 and 20% on FTSE250, but which suggest that collateral requirements in the stock lending market aren't high enough to warrant the increases by MF Global that FT Alphaville reported.

Labels: , ,

posted by John Wilson @ 4:28 PM Permanent Link newsvine reddit



0 Comments:

Post a Comment

newsvine reddit

Links to this post:

Create a Link

<< Home