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Maxcor Financial Group (MAXF) Message Board

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  • dabmu dabmu Dec 9, 2001 10:14 AM Flag

    What kind of risk does MAXF have on....

    The latest S-3 spells out how MAXF is a broker that matches parties wanting to make a trade. They specifically avoid taking a position of their own and make their revenues through commissions.

    The worst case is an "out trade" where one party doesn't come through. This language sounds like an infrequent, minimal risk to me:

    "AN INCREASE IN THE OCCURRENCE OF "OUT TRADES" COULD HAVE A MATERIAL ADVERSE
    EFFECT ON OUR FINANCIAL CONDITION OR RESULTS.

    Our core inter-dealer brokerage business primarily involves one or more
    of our subsidiaries acting as an intermediary, matching the trading needs of our
    predominantly institutional client base by providing specialized services. Some
    of these transactions are executed on a name give-up basis, that is, once the
    specific economic terms of a proposed transaction are agreed, the names of the
    individual counterparties are disclosed and, subject to acceptance of the
    credit, the transaction is completed directly by both counterparties. Other
    transactions are completed with our subsidiary acting as a matched riskless
    principal, with the respective parties to the transaction knowing the subsidiary
    as the counterparty. The transactions are then settled through one of the
    clearing firms or organizations with which the subsidiary has a contractual
    relationship. In the process of executing brokerage transactions, from time to
    time in the fast moving markets in which our subsidiaries and brokers operate,
    miscommunications or other errors can arise whereby transactions are completed
    with only one counterparty ("out trades"), thereby creating a potential
    liability for our subsidiary. If the out trade is promptly discovered, thereby
    allowing prompt disposition of the unmatched position, the risk to our
    subsidiary is usually limited. If discovery is delayed, the risk is heightened
    by the increased possibility of intervening market movements prior to such
    disposition. Although out trades usually become known at the time of or later on
    the day of the trade, on occasion they are not discovered until later in the
    settlement process. When out trades occur and are discovered, our policy is to
    have the unmatched position disposed of promptly. The occurrence of out trades
    generally rises with increases in the volatility of the market and, depending on
    their number and amount, have the potential to have a material adverse effect on
    our financial condition or results of operations."