In 1987, after our attempt to make an actual delivery of Copra (dried coconut meat used to produce coconut/vegetable oil and one of four commodities traded at the defunct Manila International Futures Exchange) was blocked with an offer to withdraw our maturing contracts at a nifty profit, the brokerage house I used to work for decided to close the branch where I was assigned. We were offered two options: resign and get a severance pay or be reassigned to the main office in Makati, the country’s premier financial district. I decided to be reassigned, and you wouldn’t believe what I went through next!
Having first-hand knowledge that prices can be manipulated at the exchange, I set out to find out more about this well-hidden secret. With the help of a friend who used to work at the trading floor of the exchange, I learned the hand signals used at the MIFE trading floor (in contrast to the open outcry system used by established exchanges like CBOT and NYSE). I would visit MIFE’s viewing deck and take down notes. I noted which big broker protects certain price levels in each commodity traded at the exchange. With this knowledge, I would scamper back to the office to place my orders. Guess what? Every time I place a limit order, the price would be off by a pip or two, making me more convinced that indeed I am trading in the right direction. But, my orders were not getting hit (the market wasn’t going to give me a free ride). In the succeeding sessions I decided to put in a market order (at any price order). Usually, this kind of order would be immediately confirmed. But lo and behold, my order for merely 2 contracts moved the price limit up for two consecutive sessions. In a limit up situation your order will not be confirmed even if you place a market order, meaning even if you are willing to take the order at any price. The convenient excuse they gave to justify the situation is that there were more buyers than sellers and so my order cannot be filled! Bullshit my ass, as if I didn’t know that the volume of trade in the exchange is a farce. Anyway, I could sense that I am being watched closely by then. Finally, realizing that I can wreck havoc to the company and to the exchange itself, the head trader (a HK-based Chinese) talked to me and told me outright that if I want to make money I must place my orders with another brokerage house. He told me he would even help me and gave me a list of brokers who are not that closely linked to our company. He gave me specific instructions to open accounts and place orders only with the brokers he had just shortlisted. And sure enough my orders were getting hit and my clients were making money for a while, until it stopped once again. My orders were not getting hit once more. I later realized that this must have been the times when no new orders were coming in to the member brokers of the exchange. Then, one day the head trader approached me and talked to me heart to heart. He asked how many new accounts I could immediately open and when I told him I could open as many as he wanted, he finally made me an offer! He wanted 25% of the profits from my trades in exchange for information he would provide me (when to get in, what commodity to trade, what price to write, what specific session to enter). Not only that, he gave me his own money to open an account for him with another broker and I was to get 25% this time while he gets the rest. I fell for it, besides who wouldn’t? It was sure money for me and my clients. We did make a killing then! Later on, I learned from the guy himself that there was a huge order from China (they were operating sweat shops in China too) and they simply were bucketing this huge placement. We merely took a free ride with them, in the process hitting the other unfriendly, or uncooperative brokers of the exchange. It was all dirty! And, they have been doing this for the past 10 years…milking Philippine investors dry.
I knew then that I needed to stop. Innocent investors were getting duped dry of their hard earned savings. This was not the kind of career path I wanted to take. So, when an offer to work with a forex broker came along, I and my group made a plunge without hesitation, thinking then that the forex market cannot be manipulated as with MIFE. I was wrong because I encountered more surprises after that.
In the light of renewed efforts to re-establish the Manila International Futures Exchange by some known figures in the banking industry here in the Philippines, I am compelled by conscience to blog about my real life experiences in this industry hoping that similar pitfalls can now be avoided by both investors and the regulatory authorities alike. Extra effort must be spent to unmask who the real people behind the revival of MIFE are. My blog site shall serve as a watch dog for similar investment undertakings. It shall be a forum to expose those who are out there to scam innocent investors. Big daddy will be vigilant and this is now his newfound advocacy.