Five Factors in the Failure of MF Global

Abstract

The MF Global bankruptcy was the fifth largest financial failure in U.S. history and sent shock waves across the U.S. and European financial markets; the farming and commodities industries; and the regulatory regimes in Washington, Chicago, and New York. However, while approximately 2,800 direct finance jobs were lost and more than a billion dollars remains unaccounted for, the greater tragedy will be in the lasting effects this failure may have on the very functioning of futures markets. This article documents some of the relevant financial history of the failure and outlines the various market failure theories it invokes.These include the principal-agent problem, the issue of co-opted regulation, the market for lemons, and the divergence between downside commodity insurance and options pricing.