The collapse of a worldwide futures commission merchant was a nightmare for the world’s commodity exchanges, including Winnipeg’s.
But after a few weeks of clean-up and emergency action, the MF Global mess is mostly gone and the exchange system appears to have no lasting damage.
“There was no systemic failure,” said Brad Vannan, ICE Futures Canada’s chief executive officer.
“MF Global’s problems didn’t become a contagion that hurt other clearing participants in the markets, and I think that speaks to how robust the clearinghouses were. They were well-margined going into the event and they were able to do their jobs and they performed in the way they were expected to perform.”
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Vannan said Canadian subsidiary MF Global Canada was a significant user of the exchange. It was also one of 10 members of the ICE Canada clearinghouse, which ensures that margin and money are properly flowing between exchange users as their various futures positions change.
A clearinghouse ensures that all transactions are completed and the money is where it’s supposed to be so that problems do not arise.
Having a member of the financial safety net fail sends chills through the exchange world.
“The failure of a major clearinghouse participant is probably every market’s major fear,” said Vannan.
However, the other members of the clearinghouse took on the task of moving accounts and margin from MF Global to new futures commission merchants.
Vannan encouraged farmers who had accounts with MF Global to visit the website of KPMG, which is overseeing the bankruptcy as trustee.
He said it is important to look at the Canadian information on the website because MF Global failed in several countries and each situation is being resolved differently, according to national rules.
Vannan believes the MF Global collapse affected canola futures trade for a few days while account holders with MF Global weren’t able to get into the market.
However, November 2011 appears to have slightly more volume overall than November 2010, so the interruption was likely small and temporary.
The resiliency of the public exchanges is a relief to traders after the crisis of 2008, which occurred in the non-public over-the-counter derivatives market after Lehman Brothers failed, setting off a chain reaction as complex, secret transactions fell apart and caused massive financial problems and panic.
Vannan said the public commodity markets appear to be well-designed to handle shocks and survived this one without too much problem.
“It’s like a house fire,” said Vannan. “We know what we need to do in these types of situations.”
