In a stark reminderof the hazards of playing the option markets, even for the most sophisticated investor, a multi-national company which was struck by a blizzard of margin calls after engaging in a series of ill-fated currency option transactions has been found liable to cover multi-million-pound losses.
The investment bank with whom the transactions were placed had issued an initial margin call on the company for $840,000. In quick succession over the following five days, the company received further margin calls totalling more than $2.5 million. Swiftly thereafter, the bank terminated the relevant trading positions and later launched proceedings against the company, claiming more than $4 million.
The company argued that the initial margin call had become invalid in that it had been superseded by the others that followed it. It was also submitted that the bank’s notice of termination had been served too late, in that it arrived outside normal office hours, and that the company had in any event complied with the first margin call in that it had instructed its bankers to make the relevant payment.
However, the High Court ruled that none of those defences had any real prospect of defeating the claim and entered summary judgment on liability issues in favour of the bank. Another company within the same group which had provided a guarantee in respect of losses was also found liable. Quantum issues were less straightforward and the Court directed that they should proceed to a full trial.