MF Global records $141.5 mln bad-debt provision
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By Julie IngwersenCHICAGO (Reuters) - Broker MF Global , the world's largest broker of exchange-listed futures and options, said it recorded a bad-debt provision of about $141.5 million after one of its representatives, trading in the wheat futures market, substantially exceeded his authorized trading limit.Shares of the broker of exchange-listed futures and options fell more than 20 percent to $23.36 in early morning trade on the New York Stock Exchange.A failure in one of the company's retail order entry systems allowed the representative to establish significant positions in his own account which were sold later on Wednesday, the company said in a statement.The registered representative concerned has been terminated effective immediately.MF Global has engaged a third-party risk technology consultant to review its relevant order entry systems.Client funds are not impacted by the unauthorized activity, the Hamilton, Bermuda-based company said.Separately, CME Group Inc confirmed that despite the unauthorized trading by MF Global's representative, the company has met and continues to meet clearing obligations to CME, the parent of the world's largest derivatives exchange.U.S. wheat markets have been extremely volatile in recent weeks, driven in part by tight supplies. U.S. wheat stocks are at 60-year lows and global supplies are at 30-year lows following crop shortfalls in Europe, North America and Australia.At the CME Group's Chicago Board of Trade, the world benchmark for wheat futures, wheat prices climbed 77 percent in 2007 and are up 44 percent so far in 2008.Floor traders also cite as a cause of the volatility the growing presence of hedge funds and other large speculators that have been pouring money into commodities, including CBOT grains, as they diversified their portfolios.The growth of electronic trading has played a role as well, allowing traders to enter large orders very quickly. CBOT wheat volume was a record-high 263,120 contracts on Wednesday. Of the total, less than 5 percent was traded in the open-outcry pit.The CBOT March wheat contract spiked sharply at midmorning on Wednesday, rallying from steep declines to rise by the daily maximum allowed in a matter of minutes.Rumors circulated Wednesday that a trade was entered erroneously onto the electronic trading platform, although the market remained higher for the rest of the session.A CME spokesman reached Wednesday had no comment on the price spike.(Reporting by Julie Ingwersen; additional reporting by Sweta Singh in Bangalore; editing by Jim Marshall)
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