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MF Global uncovers rogue trader, announces USD 141.5 million bad debt provision

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MF Global (NYSE: MF), the exchange-traded futures and options broker spun-out of Man Group plc via an IPO last year, has announced a bad debt provision of USD 141.5 million following unaut

MF Global (NYSE: MF), the exchange-traded futures and options broker spun-out of Man Group plc via an IPO last year, has announced a bad debt provision of USD 141.5 million following unauthorised trading activity that came to light on Wednesday this week.

MF Global stated that during the early hours of Wednesday morning, 27 February, a registered representative in one of its U.S. branch offices, trading in the wheat futures market in his personal account, substantially exceeded his authorised trading limit. The registered representative concerned has been terminated effective immediately.

A failure in one of the company’s retail order entry systems permitted the representative to establish significant positions in his own account, which were liquidated later that morning. The unauthorised activity resulted in him incurring a loss of USD 141.5 million, which the company, as a clearing member, is responsible to settle at the clearinghouse. As a result, the company recorded a bad debt provision for the full amount.

The company believes it has made the appropriate adjustments to its order entry systems to prevent a recurrence of unauthorized trading of this type in the future. In addition, MF Global has engaged a third-party risk technology consultant to review its relevant order entry systems.

MF Global states: ‘Client funds are not at all impacted by this event. The company’s capital and liquidity position remain strong. The loss represents approximately six percent of the company’s equity, in addition to which it has close to USD 1.5 billion in undrawn committed credit facilities.’

‘In the company’s fourth fiscal quarter to date, net revenues are exceeding all comparable prior periods of this fiscal year. MF Global remains confident in its business prospects and long-term financial performance.’

MF Global Ltd. (NYSE: MF), formerly Man Financial, is the leading broker of exchange-listed futures and options in the world. It provides execution and clearing services for exchange- traded and over-the counter derivative products as well as for non-derivative foreign exchange products and securities in the cash market. MF Global’s worldwide client base of more than 130,000 active accounts ranges from financial institutions, industrial groups, hedge funds and other asset managers to professional traders and private/retail clients. MF Global operates in 12 countries on more than 70 exchanges, providing access to the largest financial markets in the world. It is the leader by volume on many of these markets and on a single day averages six million lots, more than most of the world’s largest derivatives exchanges.

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