Interpac Business and Migration Solutions Melbourne Australia

(October 31, 2011)

Bourse operator ASX has suspended failed broker MF Global from trade after the collapse of its US-based parent and is closing out the group’s open positions on the market.

A spokeswoman for Deloitte, which was this morning appointed administrator over the Australian arm of MF Global, said the accounting firm was ‘‘undertaking a process to reconcile all client accounts’’.

This could take some time, she said.

As of March 31, when MF Global ruled off its most recent set of books, the company held more than $160 million in client money and had a trading book in excess of $400 million.

‘‘The ASX advised administrators and the companies that all of the companies’ participations on the ASX have been suspended with effect from the appointment of the administrators,’’ Deloitte’s spokeswoman said.

She said the ASX was closing out all Australian positions ‘‘with immediate effect’’.

The Australian Securities and Investments Commission in a statement said that in addition to halting MF Global's futures and equities trading activities, it had been told by the ASX that grain futures would not open today and wool futures had been suspended "to preserve the integrity of the market".

"Clients of other firms who receive MF Global CFDs should contact their provider directly," the ASX said. "The administrator will advise how this impacts clearing for recent trading."

The US parent company, headed by former New Jersey senator and governor and ex-Goldman Sachs chief Jon Corzine ran into trouble after investors fretted about its exposure to sovereign bonds from Europe's most indebted governments.

The fears drove up the cost of insuring the MF Global's debt while it smashed the stock price, sending the US-listed shares plummeting last week. The company had exposure to $US6.3 billion in debt from Italy, Spain, Belgium, Ireland and Portugal – all countries struggling with the European debt crisis.

MF Global provided contracts for difference, or highly leveraged derivatives whose value fluctuated with changes in the underlying stock price. The complex products have grown in popularity in recent years, although local regulators expressed concern about the risky product being marketed to retail investors.

New York-based director of currency research at GFT Kathy Lien said the demise of MF Global was another example of how leveraged bets can go wrong.

"Demands by regulators, credit downgrades and margin calls led to the collapse of a company whose bets that Europe would not let Italy or Spain default is probably right in the long run," she said. "Thankfully MF Global is much smaller than Lehman Brothers and trading only constituted a fraction of its overall business." 

"With that in mind however, we suspect that there are plenty of other MF Globals out there in the form of traders, hedge funds and large investors who may have leveraged too much on a European debt deal," she said.