Derivatives lived up to their 'dangerous' reputation yesterday, the fifth day of the new red-chip futures contract.
A bungled computer entry saw a local brokerage lose more than $600 million from a single trade before counter-party Salomon Brothers cancelled the position.
The computer-challenged trader sold 3,500 red-chip futures at an index level of one rather than a single contract at the prevailing 3,500 index level.
The Hong Kong Futures Exchange would have been liable for the entire loss had the broker defaulted and the US firm demanded payment.
Traders blame inadequate warnings in the auto-matching software introduced with the red-chip futures contract.
Sellers input the number of contracts and offered price to the exchange computer. Potential buyers hit the price, electronically entering an irrevocable contract. Any default leaves the exchange clearing house liable for all losses.
