Source: Commodity Futures Trading Commission
The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against MF Global Inc., a registered futures commission merchant, and its predecessor corporation, Man Financial Inc. (collectively, "MF Global"), relating to risk supervision failures in four separate instances between 2003 and 2008.
The CFTC order imposes a $10 million civil monetary penalty on MF Global. The order also requires MF Global to comply with several undertakings, including enacting policies and procedures to enhance risk monitoring procedures, training, compliance procedures and compliance audit procedures. MF Global will also undertake an Independent Review and Assessment, which will be conducted by Eugene Ludwig of Promontory Financial Group. The Assessment will, among other things, review the effectiveness of existing and future risk management, supervisory and compliance policies and procedure at MF Global.
Specifically, the CFTC order finds that, from 2003 to 2008, MF Global failed in four separate instances to ensure that its risk management, supervision and compliance programs comported with its obligations to supervise diligently its business as a CFTC registrant.
In one instance, MF Global failed to diligently supervise the trading activities of an associated person (AP) on February 26-27, 2008, resulting in wheat futures trading losses by MF Global of more than $141 million. MF Global further failed to provide appropriate supervisory training to the Branch Office supervisors in the office where the trading losses occurred. The AP began trading with a debit balance of $3,004. By 6:00 am (CT) on February 27, 2008, when the overnight trading session ended, the AP held a short position in all wheat futures months combined totaling 16,428 contracts. The AP's excessive overnight trading went undetected by MF Global's designated risk monitoring staff in New York, Singapore and London. A staff member of MF Global's Risk Department became aware of the AP's position by 10:40 am (CT) on February 27, 2008. After the AP's positions were confirmed by MF Global personnel, MF Global management ordered that the AP's access to the trading system be shut off, which was effected by 11:18 am (CT).
In a separate matter, the CFTC order finds that from approximately May 2003 until April 2007, MF Global provided a customer with voice brokerage services in its natural gas derivatives trading business, which generated commissions for MF Global. MF Global failed to implement procedures to ensure appropriate transmission of price indications to the MF Global customer for certain natural gas options. In particular, MF Global failed to have procedures to ensure that the price indications transmitted by its broker "reflect a consensus taken on [a particular] date and time" and were derived "from different sources in the market place." In two other instances, the CFTC order finds that MF Global failed to diligently supervise the proper and accurate preparation of trading cards and failed to maintain appropriate written authorization to conduct trades.
The Commission appreciates the assistance of the CME Group and the New York Mercantile Exchange.
The following CFTC Division of Enforcement staff were responsible for this case: Paul G. Hayeck, Lenel Hickson, Rosemary Hollinger, Joseph A. Konizeski, Frank H. Zimmerle, David MacGregor, Nathan B. Ploener, Christine Ryall, Manal Sultan, Scott R. Williamson, Joan M. Manley, Richard B. Wagner and Vincent A. McGonagle.