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Rogue London trader loses $8m

Francesco Guerrera
Saturday 26 December 1998 00:02 GMT
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A FAILED $8m bet by a City of London dealer caused the collapse of a long-standing United States financial institution, it emerged yesterday.

In an event similar to the Barings affair - the respected investment bank which sank under the multimillion pound losses accumulated by the "rogue trader" Nick Leeson - Griffin Trading Company, a Chicago-based trading house, was forced to go out of business after a mystery dealer squandered more than pounds 5m on a complex financial instrument.

The news of Griffin's demise broke in the late afternoon on Christmas Eve, when most financial markets were closed for the Christmas holiday.

In a brief statement, the London International Financial Futures and Options Exchange (Liffe), one of Europe's leading market for derivatives and futures, said that Griffin was in default and warned other companies against doing business with the firm.

It was only the second time in the exchange's history that it had declared a member in default - a technical term which means the company is in breach of its trading rules and may not be able to pay its debts. The other occasion was when Barings collapsed after Leeson's bets on the movements of the Japanese stock market had led to a pounds 860m loss.

Liffe declined to comment on the reasons for the default, but sources close to the company said that Griffin, which has been trading on the US leading exchange, the Chicago Board of Trade (CBOT) since 1976, had been hit by a huge loss by one of its London dealers.

Griffin acts as a "clearing house", an intermediary between the independent Liffe traders, known as "locals", and the exchange. The firm guarantees and settles the deals carried out by the dealers, in exchange for a fee.

According to the sources, one of the "locals", who are renowned in financial circles for their colourful jackets and passion for alcohol and fast cars, had lost over $8m on German derivatives, a complex and high-risk financial instrument.

An industry source said: "We are not talking about the sort of figure that would make a major bank blanch but in relation to this firm's resources there was a significant loss."

Ty Fahner, chairman ofMayer Brown & Platt, Griffin's lawyers, confirmed the loss. "What I know is there was a trader in London that cleared through Griffin Trading Company's London branch and that person substantially exceeded their trading parameters and resulted in a very large loss," he said.

Mr Fahner said Griffin, which employs about 50 people in the United States, was set to give up its membership of the CBOT because it no longer met the minimum capital requirements set by the US regulators.

Liffe insiders were surprised by the news of Griffin's departure. One trader said that the company, which is co-owned by Farrell "Tex" Griffin and Roger Griffin - was a well-known presence in the Liffe's trading pits. "This is a reputable firm, which deals with at least 30 to 40 locals. They are not a one- man band, they are a fairly established and well-known organisation."

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