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Pastimes : AX cOUSIN SHORTY,,,STOK Market GREW and famous AUTHOR!!!!

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To: Don Pueblo who wrote (553)	6/10/1999 3:47:00 PM
From: Henry Volquardsen	Read Replies (1) of 875

those little games with someone accidently selling or buying massive bond positions happen every few months in Europe. Its an out growth of the electronic systems. The French are particularly vulnerable since they have eliminated open out cry and are all electronic. I'll give you my two favorite recent nightmares. A French bank had a training program set up to operate using actual terminals for trading on the German exchange. These training 'games' can be lots of fun, very realistic. Well in this particular session someone in the systems dept forgot to detach one of the terminals from the live system. One of the trainees was banking away merrily trading up a storm for a couple of days until the reconciliation dept, which had been receiving trade confirms with no internal offset, tracked them down and turned off the switch. The final tab was @ $17mln. Ouch. The last one is my favorite and also involves France. The Matif, as always, was looking to steal some business from the Liffe. They have duplicated numerous contracts traded in London with the idea that after the Euro launch all Europeans would want to trade with a European exchange as opposed to the anti-Euro Brits. They decided to dupe one of the bond contracts, I think it was th Gilt but my memory is getting fuzzy. Anyway the Matif wrote the contract differently than the corresponding Liffe contract, a different coupon I believe, with the result that the Matif contract should theoretically be two points lower. Well bond traders are not the most literate lot. It appears that a number of people didn't bother to check the contract specs. The first day of trading the market makers in Paris started pricing the contract at parity with the Liffe contract. The Matif opened a hour earlier than Liffe so they based their prices on the previous day's close. Someone in London who had read the specs immediately started selling the French contract. Word quickly made the rounds in London and all the Brits were selling. The French brokers didn't know they had mispriced the bond and just saw a mountain of selling out of London. They made the somewhat natural assumption that there must be some major news out that they hadn't seen, so they started marking the price way down. Of course not knowing where the price actually belonged they way overshot and the Brits got to buy their positions back. This is all happening in a very short period of time, about 15 minutes as I recall. Someone at the exchange noticed the wild fluctuations and called the market makers to point out the contract specs. The bill was huge but I believe the French tried to have all the trades decayed because they were 'obviously' wrong. Of course it was all the fault of the Anglo-Saxon free market mentality, thats French for evil Canadian short seller. A great day in Franco/Anglo relations, right up there with Agincourt.

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