The failure of ‘people today’ to take responsibility for their own actions is repeatedly bemoaned in the popular press in the UK. The youth are often singled out for particular criticism. Money managers have yet, to our knowledge, to come under attack though.
All set to change perhaps, with the rather strange revelation that Sentinel asked the CFTC for permission to halt redemptions – an area over which the CFTC claims no jurisdiction. The problem is the behaviour of their clients who have panicked. Sentinel seems to think they should have known better.
In a letter to clients, Sentinel wrote:
We had previously thought that the market would return to some semblance of order and that our clients would not join in the panic. Unfortunately, this has not been the case.
We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients. We contacted the CFTC today and asked for their permission to halt redemptions until we can honor them in an orderly fashion.
Reuters later quoted an unidentified CFTC official as saying:
The CFTC has no authority in this area…This isn’t something we do…We have no role in whether or not the company does this and whether the client accepts it.
Horrible when someone tries to drag you into their mess.
But beyond providing the latest example of letter-writing in troubled times, with Sentinel pulling up the drawbridge in the name of protection, the problems at Sentinel, though small in and of itself, have much broader repercussions.
Greg Newton at Naked Shorts jumped on the news on Wednesday:
Sentinel operates in the niche business of holding the excess cash—over normal margin requirements—for futures market participants, including hedge funds, futures brokers, commodity trading advisors, and similar entities. The inability of Sentinel’s customers to access their cash balances could have, at best, interesting implications if those traders cannot meet margin calls.
Sentinel’s homepage is suddenly ‘under construction’. For those seeking information on the group, you can still get in through other pages – see why should you choose Sentinel? or FAQ.
Lex notes that the site tells clients they can have “immediate access to cash, regardless of market conditions.”
Not any more they can’t – which Newton and Lex agree is troubling. Says Lex:
If all manner of brokers, hedge funds and individual investors feel unable to rely on even these apparently low-risk money management services, fear will take hold very widely indeed.