Jordan Sandman loses futures seat

Press, 19 December 1989, Page 26

Jordan Sandman loses futures seat

By

PATTRICK SMELLIE

in Wellington

JORDAN SANDMAN Futures was yesterday expelled from the New Zealand Futures Exchange, still protesting its innocence in the default which hit the market last month. JSF is up to $250,000 out of pocket on the value of its exchange seat, which it has been stripped of all rights to. However, as a founding member of the exchange, JSF paid only $lOOO for its original investment in the seat. While the expulsion was clearly designed to improve the New Zealand market’s reputation, JSF yesterday accused it of making an error of judgment. Citing American legal

counsel hired for yesterday’s hearings in Auckland, the managing director of JSF, Mr Colin Giffney, said the NZFE should have suspended the futures contract involved in the fiasco, rather than the exchange member. The incident in question involved an offshore client of JSF failing to meet margin calls on December, 1989, Government stock futures contracts. The default led to the suspension of JSF from the futures market, pending a hearing to consider its expulsion. “We argued from the beginning that we were dealing with a situation where the market was not fair, true, orderly, or properly informed,” Mr Giffney said.

The December contract should have been unwound at that point. Mr Giffney quoted JSF’s legal counsel, Mr Hugh J. Cadden, as saying. “While this is a drastic course of action, it is the only one that will halt a disorderly market.” “By continuing trading in the December contract, the exchange facilitated the resulting price swings and volatility, causing what were ‘incorrect’ prices to be reported and disseminated. “The continuation of trading exacerbated the situation by allowing the ‘fraud’ to continue to the immediate detriment of one sector of the market, while guaranteeing a windfall to the other sector and jeopardising the integrity of the exchange.”