Did Jefferies disclosure tame the market?

The Wall Street Journal ran an interesting article asking if Jefferies disclosure was going to tame the market.

Please note that the description matches what Jefferies said it would disclose, but not what it actually disclosed.

It’s not every day that a bond trader shows the entire market what he’s holding. But that’s exactly what Jefferies Group did over the weekend. 

In an effort to calm fears about its European bond holdings, Jefferies listed on two pages its major positions in the sovereign bonds of Portugal, Italy, Spain, Ireland and Greece. It broke down where it was short – betting against the bonds, and where it had long exposure, in essence holding the sovereign bonds. 

Except that they did not do this.  They released CUSIP numbers and tables with aggregate data on long, short and value at risk.

Late Friday afternoon, they said they would do this.  But that was before the Wall Street Opacity Protection Team got involved.

Most traders would hate to have this kind of information be public out of fear that rivals could use it to trade against them. But Jefferies had a more urgent need – showing people that their book is well hedged. 

After all, these are nervous times for anyone dealing in sovereign debt. 

In a note to employees Sunday, Jefferies CEO Richard Handler and executive-committee chairman Brian Friedman stressed that its European hedges were in regular trades it uses with clients, not fancy derivatives that may not work when they’re needed. (they’re talking about you, credit default swaps.) 

“These are not investments for us,” wrote Messrs. Hander and Friedman. “This inventory turns over an average of several times a week… As the old adage goes, ‘we are in the moving business, not the storage business.’” 

UPDATE: Just before U.S. markets opened Monday, Jefferies said it had cut in half its exposure in troubled European government debt. 

Interestingly, their "net" exposure increased while the "gross" exposure declined.

The New York securities dealer pointed to its Italian market-making business as an example, where it has $1.5 billion in “long” positions in sovereign debt maturing next year, offset by $1.5 billion in shorts. The shorts essentially are a promise to deliver a bond that Jefferies doesn’t yet have. Except it does have them in its “long” positions. 

Sounds like a perfectly simple hedge. But investors have been in an unforgiving mood.... 

“We want to assure that our clients, our shareholders, our bondholders, our employees and all others who care about Jefferies have accurate information about our business and financial condition,” Mr. Handler said in a statement. 

Of course, this type of trading isn’t risk free – there can be difficulties in matching positions of different maturities, and so on. But Jefferies is willing to go further than almost anyone else to convince investors it doesn’t have an MF-Global like bet behind the curtain....

Only if they had actually disclosed what they said they were going to disclose.