E-trade to thrive despite MF Global wheat loss

By Sam Nelson - Analysis

CHICAGO (Reuters) - A rogue trader who chalked up $141.5 million in losses for broker M.F. Global (MF.N) trading wheat futures made those unauthorized bets electronically, but the scandal is unlikely to dampen interest in screen-based trading which has grown exponentially the past two years.

The ability to get in and out of a market without leaving tracks for competitors, or the media, is helping to lure more and more speculative investors to electronic trading.

"It's good in that it's cheaper, quicker and it's resulted in a dramatic growth in volume. It's very efficient," said Vic Lespinasse, analyst for Illinois Grain.

"The companies need better safeguards -- it had nothing to do with electronic trading," Lespinasse said, alluding to rogue trader Evan Dooley exceeding his trading limits to incur the losses for MF Global, the world's largest broker of exchange-listed futures and options.

The growth of electronic trading at the Chicago Board of Trade, the world's largest grain exchange, has been huge.

"Right now about 81 percent of our volume is done electronically, 41 percent higher than at the beginning of the year," said Mary Haffenberg, spokeswoman for the CME Group CME.N, parent company of the Chicago Mercantile Exchange and

CBOT.

"For CBOT grains and oilseeds, we trade about 800,000 contracts a day, and of that, about 508,000 are traded electronically, or around 64 percent," she said.

CBOT data showed that about 100,000 CBOT wheat contracts were traded on Thursday and 90 percent was done electronically. By comparison, 72 percent of the corn was done on screens and 76 percent of the soybeans was traded electronically.

"Voice broke retail (open-outcry) is the smallest part of our retail business and it is declining quite rapidly unsurprising as almost all new customers choose to trade online," MF Global Chief Executive Kevin Davis said on Thursday during a press conference following the news his company had lost millions.

WHEAT TRADE SENDS SHIVERS THROUGH STOCK PRICE

The news has sent MF Global's share price plummeting about 50 percent and triggered a frenzied trade in stock options.

"MF Global is once again one of the stand-out option plays on Friday as investors continue to pound the stock after more details emerge over the unwind of some damaging wheat futures positions," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, in a note to clients.

"Having debuted in July 2007 as a public company at a share price of $30, shares today breached the $20 level before accelerating to a low of $14," Wilkinson said.

On Wednesday, when Dooley executed his losing bet, Chicago wheat futures traded in a huge $2.69-per-bushel range, plunging by their $1.35 daily trading limit and then soaring nearly that much, leaving traders in the traditional open-outcry wheat puzzled.