A foul up on paper

An FFA broker was negotiating a Panamax contract for December. The negotiations were slightly unusual in that they took place in December, once the month had already started. The principal had done relatively few FFA transactions and initially agreed to sell a contract with a settlement period for the remaining part of the month; however, during negotiations he was informed that the settlement rate could be calculated over the whole month (including the period that already passed) and he changed his requirement to include the full month.

At this stage the broker had to leave the office to travel on business and handed the deal over to a colleague. His replacement failed to appreciate the change in the principal’s requirement and sold the FFA contract with the original 20 day settlement period. The market moved against the principal and the amount he had to pay out on the contract was greater because of the broker’s error. The Club indemnified the broker.

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