Apparently FC Stone said their commercial clients were rattled by the "rogue wave" too but they all met their margin obligations. And that is illegal. That's called front-running.
Optionsellers.com goes bust and the apology video is painful to watch
- Thread starter Sweet Bobby
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Apparently FC Stone said their commercial clients were rattled by the "rogue wave" too but they all met their margin obligations. And that is illegal. That's called front-running.
The equivalent of "James Cordiers" in 1987's stock index option market:
https://www.washingtonpost.com/arch...f02-9d22-585cf53c8548/?utm_term=.cdc4db782f08
https://www.washingtonpost.com/arch...f02-9d22-585cf53c8548/?utm_term=.cdc4db782f08
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Do you have a link regarding fc stones statement on their commercial customers? I had dinner with a huge physical trader last night, these guys are not ran over, they are very nimble, control storage, pipelines, etc. Only a few plants tripped for a short time because they didn’t want to pay spot. It was a catastrophe on the retail side most commercials cleaned up.
https://business.financialpost.com/...-fund-manager-confessed-his-losses-on-youtube
https://www.bloomberg.com/news/arti...unts-liquidated-amid-energy-market-volatility
It was in many of the articles that I found online. These are just a few of them. The article specifically stated:
"FCStone said the volatility in gas “caused liquidity stress for our U.S. Futures Commission Merchant customers both on the commercial and institutional side,” but that its commercial customers have met their margin calls."
So perhaps I misunderstood?
Didn’t see any of those quote in the articles I was reading but there they are. Still
Lots of winners and losers and questions about fc stones book. Much bigger story the just optionsellers.
This could also be a concerted effort to force a bail out of a few nuclear power plants that are slated for closing that have been displaced by low cost ng plants. Lots of stakeholders with very deep pockets would like to see that happen.
Very reminiscent of Enron electricity trading In California 2000-2001. This story is far from over.
Yes in all probability they actually hedged the risk of these accounts internally themselves at the very least. Clearing brokers do that to protect themselves when customers have large positions. So they probably suffered no actual loss themselves. But they get to collect the customer "deficits" as if they did.
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So they jacked up the price of NG to raise money for the bailout? That's cornering the market? Isn't it?
How exactly would that work, in your opinion? If they bought the vol to hedge and the event happened, they indeed have no loss (or a smaller one), but if no event happened they would be out premium. The only way for the broker/clearer to protect themselves was to limit the size in these types of position.
Say the clearing broker privately buys some calls early on in their own account to protect themselves against their risk on the large client position (not in the client account to protect the client). Then the broker eventually closes those private calls at a huge profit.
But along the way he or the client liquidates the client account and the client account goes to debit balance without any regard to the broker's own undisclosed "secret" protection. So the broker collects the debit balance from the client.
But under the covers the broker already covered off that loss on his own private hedge. So he "double recovers."
Yes, you can argue that over the long term grand total of all such events, the broker only breaks even. That is true from an economic analysis..
But if I were the client's lawyer, I would argue that the broker ultimately had no real loss on the liquidation of the client account, so he should not be able to hold the client liable for the debit balance. You would also cite unjust enrichment, estoppel, failure to liquidate in good faith etc. etc at the same time. It may be a somewhat weak argument on an economic analysis basis, but I think it would help the client as the court or arbitrator tries to balance things out equitably in a very difficult situation.
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Nice and interesting take, but the only reason the broker didn't have a loss is because he used extra caution and double covered the idiot customer. So he should be paid for that kind of foresight. And no matter what the broker did, the customer still fucked it up...