MF Global ditch US Futures Exchange Thursday, December 18, 2008

Derivatives traders at the Chicago Board of Trade.Image via WikipediaI'm intrigued by the motives behind the decision by MF Global, announced today, to abandon its' interest in the US Futures Exchange in which it directly held at 48% stake.

The business was originally set up by Eurex to provide a competing offering to the dominant Chicago Mercantile Exchange. in the US. In 2006, when it was struggling to attract liquidity away from CME, MF Global took a sizeable strategic stake in the venture, with a view to ratching-up the competition in the market via an injection of its' own sizeable order flow and ultimately generating significant capital value for MF, given the heafty multiples that Exchanges commanded at that time.

The $7m annual cost of being involved in the venture is a relatively trivial sum for MF Global, which prompts me to wonder whether the current CEO's past positions, resultant beliefs and relationships have influenced this decision far more than the financials. Prior to joining MF Global in the Summer of 2008, Bernard Dan headed the Chicago Board of Trade (CBOT) where he served as president and chief executive officer from November 2002 until July 2007 when the company was acquired by the CME.
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posted by John Wilson @ 2:55 PM Permanent Link ,

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MF Global throws skipper overboard Wednesday, October 29, 2008

Well it took six weeks for the coup to be completed, but MF Global finally ditched its' CEO today. Back in mid September, I wrote here about their Global COO having been jettisoned and doubting it would be enough to save Kevin Davis his job.

Bernard Dan, who led the Chicago Board of Trade for five years replaces Kevin. He joined MF Global in June as chief operating officer for North America and was promoted to global chief operating last month in place of Chris Smith before rounding off with the top job within two months.

Kevin has to be given enormous credit for building MF up from relatively nothing to a global player, ignoring the many doubters and critics along the way. He made mistakes including his late conversion to electronic broking and passing on the opportunity to pick up Instinet from Reuters on the cheap, which has since spawned Chi-X.

He was an exuberant character but ruthless with it and could be quick to judge - his dreadful handling of the hikes in margins on CFDs following the unauthorised trader loss in February was a case in point. He was a canny deal maker and acquired both Refco and GNI relatively cheaply, albeit the former proved to be his downfall since it included the unit that clocked up the unauthorised trading loss of $141m back in Feb 2008.

Kevin gets $7.5m severance to ease his pain, but will have lost considerably more than that on his share holding in the firm since it went public last year at $30 and which closed at $2.25 on Tuesday.

MF Global have also got a new Global Treasurer, David Dunne who was previously at Bear Stearns in London for 15 yrs, but who will be based in US. It's a smaller job than it once was given that $3.5bn of client funds have been withdrawn from MF since March according to JP Morgan.

Disclosure - I was previously a board director at Man Financial [which renamed itself to MF Global when it listed in July 2007].
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posted by John Wilson @ 4:33 PM Permanent Link ,

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MF Global - Bodies continue to be thrown overboard Monday, September 15, 2008

Yet another senior management casualty at MF Global, this time the Global COO Chris Smith. He has been replaced by his recently appointed deputy in a move that had been rumoured since that appointment was made.

As reported in Financial News, Bernard Dan who joined MF in June 2008 as COO for North America, has been appointed President and Global COO. He was formerly CEO of CBOT.

In the 6 months since the chaos that followed the margin hikes, share price collapse and huge unauthorised trading loss, MF Global has appointed a new CFO, a new Chief Risk Officer and a new Chief Compliance Officer to strengthen its' senior management team. It had been internally believed that these would be sufficient to stave off calls for those at the very top to go.

Hence, this departure is significant - Chris had been the right hand man of Kevin Davis, the CEO, for the last 17 years and they were previously inseparable. Speaking to some of my former colleagues today, there is still some shock that Chris has been cut adrift despite mounting signs. At the same time, there is some doubt that it will be enough for Kevin to save his own job amidst continuing calls from some shareholders for him to be replaced.

Shareholders have suffered a roller coaster ride since the firm was de-merged from Man Group in July 2007 at $27 and hitting a low of $3.38 within 12 months. It closed at $5.21 today, off 17% in today's chaos.

Disclosure - I was formerly a Board Director at Man Financial [now MF Global] until 2005.
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posted by John Wilson @ 10:02 PM Permanent Link ,

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MF Global clients asked to take a hike Wednesday, March 19, 2008

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.

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