Minyan Mailbag: More Refco Thoughts
Prof. Succo -
Overly simplistic question, but according to Bloomberg:
"Exchanges and regulators have wide influence over Refco's (RFX) fate, according to current and former government officials. The NYSE can de-list Refco and the futures trading commission can rescind Refco's registration as a futures broker, a move that would put most of the company out of business."
If they pull their futures registration, could this be a similar situation for some of the proprietary trading hedge funds that General Motors (GM) was to the convertible arb community during 1H 2005? These guys use significant leverage so the impact could be throughout the whole banking industry.
Refco's prime brokerage business extends the use leverage of some type to its customers.
If a third party steps in and takes over its whole book (another registered futures broker), there will probably be very little impact to the system and various prices of securities/futures.
If instead the company is forced to wind down (which is what seems to be happening) accounts that individual customers can't transfer themselves (a lot will be able to, but some won't), positions for those accounts will be liquidated. If there's a directional leaning in those accounts, there could be some disruption in the futures markets.
At this point with what we know, this probably won't ripple much into banking, unless there were banks extending uncollateralized credit.
This is possible, but probably not likely.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter