This Sunday’s New York Times Business Section carried an interesting column (“Sad Proof of Europe’s Fallout.”) It essentially claims that MF Global “was felled by over-the-top leverage and bad derivative bets on debt-weakened European countries.” It goes on to say that one of the lessons of MF Global’s failure was that when Euro-shocks “reach our shores, they usually ride in on a wave of derivatives.”
Pretty compelling stuff.
Except that it’s not true.
MF Global did not use derivatives to make its bets on European sovereign debt. As the company stated in its third-quarter earnings release on October 25th:
“As of September 30, 2011, MF Global maintained a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity), including Belgium, Italy, Spain, Portugal and Ireland.”
So it seems clear that MF’s European sovereign debt holdings were just that, bond positions financed via repo transactions. Repos, of course, are NOT OTC derivatives. (They’re also not listed derivatives.) They are basic tools of corporate finance commonly used to finance cash bond positions.
We would have thought that, with a little checking, this point would be pretty obvious to one and all. We would have also thought that reporters (and consultants who are used as expert sources on financial matters) would know that because MF Global was an SEC registered Broker-Dealer and CFTC registered Futures Commission Merchant, regulators at all times had full transparency into the nature and extent of MF Global’s trading and risk positions.
In short, there were no derivatives, no opaque financial instruments and no hidden risks in the story of MF Global’s downfall. There were, though, a lot of inaccuracies in the way that story was told.
Sad proof indeed.
Latest
Credit Derivatives Trading Activity Q2 2025
This report analyzes credit derivatives trading activity reported in Europe. The analysis shows European credit derivatives transactions based on the location of reporting venues (EU versus UK) and product type. The report also compares European-reported credit derivatives trading activity to...
ISDA Trading and Treasury Forum: CEO Remarks
ISDA Derivatives Trading and Treasury Forum London, September 16, 2025 Opening Remarks Scott O’Malia ISDA Chief Executive Officer Good morning, and welcome to the ISDA Derivatives Trading and Treasury Forum. Thank you to CME Group for partnering with us...
Recognition of Cross-product Netting is Critical
US regulators are in the process of making important changes to the regulatory capital framework by proposing modifications to the enhanced supplementary leverage ratio, which should help stop it from acting as a non-risk-sensitive constraint on bank capacity – a...
ISDA, GFXD Response to FCA on SI Regime
On September 10, ISDA and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association responded to the Financial Conduct Authority's (FCA) consultation paper CP25/20 on the systematic internalizer (SI) regime for derivatives and bonds. ISDA and the...