With wheat futures already experiencing unprecedented volatility, a rogue trader rocked the market on Feb. 27. MF Global acknowledged that a
U.S.
registered representative of the firm, trading Chicago Board of Trade wheat, exceeded his authorized trading limit and lost $141.5 million. The trader, Evan B. Dooley, was terminated immediately.
“You couple a perfect storm of cheap money and the most volatile and biggest markets of all time with larceny and you’ve got an ugly story,” says Tom C. Willis, longtime grain trader and vice president at
Mesirow
Financial Commodities Management.
MF Global CEO Kevin Davis said in a conference call the following day that certain MF Global retail order entry systems didn’t have “buying power control.” The risk management mechanism would not have allowed trades exceeding an account’s limits.
Davis
said, “Some offices do not have buying power control,” adding that the safety mechanism can make trading less efficient.
Davis
went on to say that from now on, all retail entries will have buying power control and that MF Global will, “sacrifice some efficiency for safety.” He added, “It is embarrassing for all of us.”
Tom R. Willis, also a vice president and trader at
Mesirow
Financial Commodities Management, observed that “because MF Global wanted to provide the quickest and most efficient access to the electronic market, limits or safeguards were taken off the electronic system, which allowed this guy to take advantage of the situation,”
Wheat futures have experienced unprecedented volatility in recent months. The CBOT (CME Group), Minneapolis Grain Exchange (MGEX) and
Kansas City
Board of Trade (KCBT) have raised daily price limits in wheat. Current limits are set at $1.35. MGEX lifted its limit on its March 2008 contract. “I’ve been [trading] for 35 year