BIR World Mirror on Non-Ferrous Metals - December 2011

From foolproof to fiasco

The MF Global fiasco, the latest of the financial debacles to infect the non-ferrous metals industry, along with the shameful shortfalls of regulatory authorities to act, provides good cause to doubt the viability of what was once considered a foolproof mechanism to offset risk on futures exchanges.

What business does any brokerage have in betting the house on a ridiculous wager, jeopardizing the well-being of its employees and their families and the sanctity of its customers’ funds? Most of us know how to hedge against price and currency risks, but hedging against fraud (in this case, alleged fraud) is impossible.

And so another clean-up is upon us, to find out who did what and when. Perhaps appropriate monitoring before the event could have prevented the alleged violation of the sacrosanct rule of segregation of customers’ funds from those of a brokerage firm.
If any of us had been interested in betting on the outcome of the European financial crisis, we could have done it without the unsolicited help of others.

Robert Stein
Alter Trading (USA)
President of the BIR Non-Ferrous Metals Division
15 November 2011

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