Heavy trading in shares of Dana Petroleum on behalf of private clients is the main cause of the financial problems at stockbroking firm MMI. The extent of the difficulties means that the firm may now be facing liquidation, unless it can find a partner willing to invest some funds.

The Central Bank is now effectively controlling it and has ordered that it cease trading except where the Bank gives its permission. Sources believe that client funds in the broking firm or its associates are not at risk.

MMI bought shares in Dana on behalf of a small number of clients, with between 30 and 50 investors involved, according to sources. Most of the shares were bought in the London market, and MMI's main liabilities are likely to be to other brokers from which it bought shares there.

The problem for Dana is that it entered into arrangements with its clients which allowed them to postpone paying for the shares and left MMI holding a large number of shares which had fallen sharply in value.

MMI retained ownership of the Dana shares, during a period when the share price was collapsing as a result of Dana's exposure to the Russian oil industry.

It is understood that most of the Dana shares were bought in June and July at prices between 15p and 22p, and that MMI itself rolled over its liabilities for the shares it had bought for clients - in other words it entered into arrangements with the people it bought the shares from to defer paying for them.

Those liabilities reached millions of pounds - although the precise scale of the current deficit is unknown. This has left the broker unable to meet the liquidity requirements of the Central Bank.

Essentially, the financial crisis has arisen as a result of the practice of buying shares on behalf of its clients and then rolling the payment for those shares over successive two-week settlement periods.

In this way, MMI's clients did not pay for the shares they ordered the brokers to buy on their behalf.

MMI clients, who were unable to pay for their Dana shares when the settlement was due, had their account rolled-over for successive settlement periods - with MMI levying a penalty of 1/4p to 1/2p a share on clients who took advantage of the rollover arrangement.

MMI, which has its headquarters on Lower Baggot Street in Dublin, consists of three closely-related companies: Money Markets International Limited, MMI Stockbrokers Limited and MMI Asset Management Limited.

It is the stockbroking arm which has run into difficulties. This has led to Mr Oisin Fanning stepping aside as managing director, a role now taken on by Mr Tim Murphy.

MMI also has an associate asset-management division offering tax-based and customised investment services and pension planning.

This division is majority-owned by its management and investors who have put funds into its investments are not expected to lose any funds.

All such investments would be underwritten by major financial institutions.