Rogue trader cost MF Global $142M

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crgarcia

Rogue trader cost MF Global $142M

* Story Highlights
* A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses
* Losses cost the company almost a fifth of its market value
* Evan Dooley was trading wheat contracts in amounts that exceeded his trade limit
* An entry-order system that should have blocked the trades failed

NEW YORK (AP) -- A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses on the broker's account this week, the company said Thursday, costing the company almost a fifth of its market value.

MF Global fired trader Evan Dooley and liquidated the wheat contracts, which led to a $141.5 million loss.

The Bermuda-based broker said on Wednesday morning it discovered Evan Dooley, a trader at the company's Memphis, Tennessee, branch, trading wheat contracts in amounts that exceeded how much he was allowed to trade.

MF Global fired Dooley and liquidated the wheat contracts, which led to a $141.5 million (€93.6 million) loss.

An entry-order system that should have blocked the trades failed, the company said.

Dooley had bought a few thousand lots of wheat futures contracts on the Chicago Board of Trade, MF Global said.

The price of wheat has surged in the past month because of constraints to global supply and swelling demand from China.

http://edition.cnn.com/2008/BUSINESS/02/28/MF.rogue.trader.ap/index.html
 
The risk managers at this firm need to be taken out to the woodshed. The guy was trading out of their Memphis, TN office for goodness sake. 14,000 contracts...Red Flag....Hello???
 
Quote from crgarcia:


Dooley had bought a few thousand lots of wheat futures contracts on the Chicago Board of Trade, MF Global said.
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wtf...he lost all that money trying to go <b>LONG</B> wheat. I would have thought he was trying to short it/pick a top.
 
Quote from brocklanders:

The risk managers at this firm need to be taken out to the woodshed. The guy was trading out of their Memphis, TN office for goodness sake. 14,000 contracts...Red Flag....Hello???
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Where you got the 14,000 contracts info?

If they only traded 14,000 contracts, they lost on average $10,107.14 per contract.

Do this guys even know what stop losses are?, Do they have ever heard the Wall Street adage: "Let your profits ride, and cut your losses short"

And yes, those risk managers should be in front of the firing squad by the morning.
 
Quote from jsmooth:

wtf...he lost all that money trying to go <b>LONG</B> wheat. I would have thought he was trying to short it/pick a top.
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I was thinking the same thing

While there has been a little volatility in wheat:
http://charts3.barchart.com/chart.a...divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

Likely they were shorting and got squeezed.
I don't think they got this losses from being long, unless they found a way to bypass CME maintenance margin requeriments.
 
SEC reaction will probably be to regulate trades by retail traders trading from home. We will probably have to run our trades past our brokers compliance dept before we can put it on.
 
"It was unclear if the price jump triggered Mr Dooley's losses but traders said he was betting on falling wheat prices. A Chicago-based trader said Mr Dooley shorted the market - bets on falling wheat prices - "all night with around 12,000-14,000 contracts, so that accounted for the crazy action we saw" on the wheat market."

Yes, this idiot was short.
 
Quote from mokwit:

SEC reaction will probably be to regulate trades by retail traders trading from home. We will probably have to run our trades past our brokers compliance dept before we can put it on.
More...

Wrong agency. CFTC regulates futures.
 
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