ASE Suspends All MF Global Australia Trading After Bankruptcy Filing by Parent Firm
The Australian Securities Exchange suspended all of trades of MF Global Australia due to the filing for bankruptcy on Monday night by its parent company in the U.S. Deloitte was named administrator of MF Global operations in Australia.
MF Global Australia is the fourth largest dealer of high-risk instruments called contracts for difference (CFDs) in the country. It handled white label trades for eTrade, CommSec, Westpac and others.
Following the suspension of trading, CommSec warned clients on Monday that it would no longer allow them to open new positions and recommended its over-the-counter (OTC) CFD customers to close any existing OTC CFD positions.
MF Global has $6.3 billion in European debt. Although the company has a relative small operation in Australia and the U.S. compared to Bear Stearns and Lehman Brothers, its collapse is an indicator of how the European debt contagion has affected the equity market.
MF Global Australia clients attempted on Monday to withdraw funds from the company, while local brokers closed business with the firm. Some of Australia's largest banks, however, were already counting the cost of their exposure to MF Global.
Reports said MF Global was forced by offshore regulators to sell its assets for $1 billion to another CFD provider, Interactive Brokers, or face closure.
MF Global Australia, which holds more than $400 million in its trading books and enjoyed a 5 per cent market share, is the largest of the CFD brokers to encounter financial problems. Previously, margin lenders Opes Prime and Lift Capital have collapsed.
Australian Securities and Investments Commission (ASIC) Chairman Greg Medcraft said that ASIC is monitoring the issue. Mr Medcraft is a known critic of CFD because a small movement in share prices could grow into large losses.
CFD client funds are joined in one account, which would potentially expose one client to risk of losses for another client's trade or failure to act on a margin call.
Reports said MF Global looked for a buyer over the weekend. Among the large banks it reached out were Macquarie, Barclays, Citigroup, Deutsche Bank, JPMorgan Chase, State Street and Wells Fargo.
