Looming derivatives house MF Global failure testimony to Dodd-Frank reform strength

[banned from Kos]

Yeah - a huge derivatives broker is on the edge of failure as its credit rating has been cut to junk. But there is no contagion like in 2008.

Why did they get downgraded? MF owns Euro sovereign bonds.

But despite the possibility that MF may go under or be gobbled up before the end of this weekend, markets are not in a free fall similar to the panics when Bear Stearns and Lehman Brothers faced a similar fate in 2008.

That is because although MF operates as a broker in the derivatives markets -- where financial contagion can spread like wildfire -- the firm mostly trades exchange traded derivatives moved through a securities "clearinghouse." Think of the clearinghouse as a financial "green zone," where trading counterparts don't hold each others trades on their books and profit and loss are exchanged daily, instead of building over time.

It means trading counterparties like other large brokers and banks aren't mortally exposed to an MF Global failure. That's a big difference from the swaps markets where Lehman operated and where trades are still being resolved in a multi-year bankruptcy process.

http://www.thestreet.com/_yahoo/story/11292669/1/dodd-frank-victory-as-mf-global-avoids-contagion.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA