Washington, D.C. – MF Global Inc. has been penalized $10 million by the U.S. Commodity Futures Trading Commission (CFTC) for failures in risk supervision, the agency announced December 17, 2009. The charges stem from four separate incidents occurring between 2003 and 2008, revealing systemic weaknesses in the firm’s oversight of trading activities.
The CFTC order details that MF Global failed to ensure its risk management, supervision, and compliance programs met regulatory obligations during the specified period. One significant instance involved a trading loss exceeding $141 million in wheat futures on February 26-27, 2008, due to the unsupervised actions of an associated person (AP). The AP initiated trading with a $3,004 debit balance and amassed a substantial short position in wheat futures contracts – a total of 16,428 contracts – which went undetected by MF Global’s risk monitoring staff across New York, Singapore, and London.
It took over fourteen hours for a member of MF Global’s Risk Department to become aware of the AP’s extensive position, and access to the trading system wasn’t revoked until 11:18 am CT on February 27th. The CFTC also found that the firm lacked adequate supervisory training for branch office supervisors responsible for monitoring such activity.
In a separate matter, between May 2003 and April 2007, MF Global provided voice brokerage services for natural gas derivatives, generating commissions. However, the firm failed to implement procedures guaranteeing accurate price indications to a customer, specifically lacking a system to ensure prices reflected consensus from diverse market sources. The CFTC also cited instances of inadequate preparation and authorization for trades.
As part of the settlement, MF Global is required to implement enhanced risk monitoring procedures, improved training, and robust compliance audits. An independent review will be conducted by Eugene Ludwig of Promontory Financial Group to assess the effectiveness of these changes. The CFTC acknowledged the assistance provided by the CME Group and the New York Mercantile Exchange during the investigation.
Source: CFTC.gov
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