CHAPTER 16 Futures Contracts
... 2 Chapter 16
(marg. def. forward contract Agreement between a buyer and a seller, who both
commit to a transaction at a future date at a price set by negotiation today.)
16.1 Futures Contract Basics
By definition, a forward contract is a formal agreement between a buyer and a seller, who
both commi ...
commodity trading and financial markets
... in the insurance market.
Diversification and integration reduce risk
Global trading firms handle a variety of commodities
and manage processes across the supply chain.
As diversified operations they enjoy limited natural
protection from commodity price changes. Different
price pressures in various c ...
SAVVIS selected by the Montréal Exchange for online trading
... Magazine. SAVVIS beat out well-known VPN providers such as AT&T, WorldCom, Sprint and
SAVVIS Communications was ranked the eighth fastest-growing technology company in North
America on the 2001 Deloitte & Touche Technology Fast 500, which ranks companies based on
five-year percentage revenu ...
Derivatives: The Good, The Bad and … the Necessary?
... There are two distinct groups of derivative contracts, distinguished by the way they are traded in
Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly
... unbound. Many of the new developments emanated from the US. But they are ever more global. With them
come not just new economic activities and new wealth but also a new social and political landscape.
First, finance has exploded. According to the McKinsey Global Institute, the ratio of global financ ...
MF Global (OTC Pink: MFGLQ), formerly known as Man Financial, was a major global financial derivatives broker, or commodities brokerage firm. MF Global provided exchange-traded derivatives, such as futures and options as well as over-the-counter products such as contracts for difference (CFDs), foreign exchange and spread betting. MF Global Inc. its broker-dealer subsidiary, was a primary dealer in United States Treasury securities. A series of perceived liquidity problems and large fines and penalties dogged MF Global starting in 2008, and led to its bankruptcy in 2011.In February 2008, one of MF Global's commodities traders attempted to trade for his own profit, while the firm's risk management software was turned off; but the trade went badly and resulted in a loss of $141 million for the firm, plus over $10.4 million in fines for risk supervision failure. In March 2008, the stock price plummeted due to fears regarding the liquidity of MF Global among investors, advisers and analysts. In December 2009, a U.S. Commodity Futures Trading Commission order imposed a $10 million civil monetary penalty on MF Global, relating to four separate instances of risk supervision failures between 2003 and 2008.In 2011, MF Global faced major pressures to its liquidity over several months. Some analysts and financial commentators indicate that MF Global probably experienced a number of trading days in 2011 during which the firm's bets on sovereign debt would have required the use of customer funds to meet capital requirements, thereby maintaining operating funds and possibly overall solvency. A large part of these pressures on MF Global were a result of the firm's involvement in a significant number of repurchase agreements. Many of these repo agreements were conducted off their balance sheet. Also, MF Global made a $6.3 billion investment on its own behalf in bonds of some of Europe’s most indebted nations. Failure of those, and other, repo positions contributed to the massive liquidity crisis at the firm.In late October 2011, MF Global experienced a spectacular meltdown of its financial condition, directly caused by improper transfers of over $891 million from customer accounts to a MF broker-dealer account to cover losses created by trading losses.On October 31, 2011, MF Global executives admitted that transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global’s U.K. subsidiary to cover (or mask) liquidity shortfalls at the company occurred on October 28, 2011. MF could not repay these monies with its own funds. Improper co-mingling, or mixing, of company and client funds took place for days before the illicit transfer and loans – and perhaps many other days earlier in the year. According the New York Times, ""MF Global dipped again and again into customer funds to meet the demands"", perhaps beginning as early as August 2011.MF Global declared bankruptcy on October 31, 2011, and faced liquidation beginning in November 2011.According to a trustee liquidating the company after its collapse, the losses incurred by customers of MF Global stood at $1.6 billion because of the debacle as of April 2012. In January 2013, a judge approved a settlement that would return 93 percent of customers' investments, with the prospect of additional payouts from the company's general estate. NYT DealBook called this a ""remarkable turnaround"" from the initial state of affairs, while noting that it followed ""an aggressive campaign by customers to recoup their funds."" In 2014, all MF Global customers who had not sold on their debt claims were repaid in full - the amount recovered from the company's general estate covered the value of all the remaining customer investments.In December 2014, MF Global Holdings settled a U.S. government lawsuit, agreeing to pay $1.2 billion in restitution and a $100 million fine for customer losses tied to the company’s 2011 collapse.