Some interesting comments from this article
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John Clothier, distribution head with the bank's Colonial Geared Investments, told an inquiry into Storm's collapse that Mr Cassimatis had agreed to sell down $700 million worth of client funds last October after they fell into margin call.
But when the market staged a brief rally, Mr Cassimatis sought to stop the second part of the sale because he wanted to gamble that clients might recover, the court heard.
... etc ...
Mr Clothier said that Storm was informed with dozens of emails and phone calls that the number of its clients in margin call had blown out from 98 to 710 by October 5.
Mr Clothier said that eventually CGI came to the conclusion that it could not "rely upon and trust resolutions" proposed by Storm, which had many clients who had been in negative equity for six weeks or more.
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Thats pretty damaging ... and very much sounds like someone not operating to any kind of plan. From this it sounds very much like Storm were well aware that many of their clients were already in margin call but were running on a mixture of panic and hope, and flailing about indecisively. The headless chook approach to crisis management. (I'm well versed in this approach as I use it myself quite regularly
... but luckily I'm not managing thousands of peoples financial futures
).
In all serious - with the level of gearing and risk that they prescribed, it is quite astounding that there was a complete lack of any kind of plan for what they would do in the event of a serious unravelling to the downside. It is not as though they hadn't had some forewarning, given the depth and extent of the crisis that had already occurred in the prior 8 months or so.
If they were going to continue to gamble on a bounce they could at the very least have implemented some kind of derivatives based downside protection - but to ignore the initial margin calls and 'hope' to win it back is like a novice investor/trader ignoring their stops - and its exactly the sort of behaviour that contributes to the final capitulation phase of a down trend. Sounds very amateurish to me.
I'm also suprised, given the level of gearing they were recommending their clients take to invest into the index fund, and that it was a Storm branded fund, that the index fund itself wasn't set up in such a way as to incorporate hedge protections against market volatility (and maybe it did but wasn't enough but it doesn't sound like it).