In the wake of the MF Global Holding Ltd.’s bankruptcy, the news flow has been heavy about the bankruptcy, investigations, investments, customer accounts and other items. We’ve compiled the main headlines today so you can stay on top of these extraordinary events.
In the wake of the MF Global bankruptcy, John Lothian Newsletter has created a special section on JohnLothianNewsletter.com devoted to news, information and commentary. The section features archived news stories featured in the John Lothian Newsletter, analysis and breaking news. Check regularly for updates. See the MF Global news section here.
Our MarketsWiki MF Global Holdings Ltd page features an up-to-date account of news and information on the firm as well.
CME Group Statement Regarding MF Global (link):
CHICAGO, November 2, 2011 – CME Clearing is holding substantial excess margin collateral from MF Global Inc. (“MF Global”) and therefore continues to be in a strong financial position, both with respect to MF Global and more generally. MF Global’s customer positions on CME Group exchanges were and continue to be substantially over-collateralized at CME Clearing. As of today, the proprietary positions of MF Global have been liquidated with no adverse market impact, leaving a substantial part of that collateral to be applied to MF Global’s obligations at CME.
Our primary focus is the protection of our customers and the integrity of our markets. Our current efforts are focused on working diligently with the CFTC and the SIPC trustee to facilitate the transfer of customer positions to other qualified clearing member firms, with as much CME Clearing held collateral as will be legally permitted. CME has no control over the disposition of customer segregated funds that are held by MF Global and not held by CME Clearing. Those funds are now under the control of the SIPC trustee. Nevertheless, we have urged the SIPC trustee to facilitate the transfer of such funds from MF Global to MF Global customers.
With respect to the apparent shortfall in customer segregated funds held by MF Global (and which were not on deposit with CME Clearing), it appears that any transfer of such funds occurred following the completion of CME audit procedures respecting such funds and in violation of CFTC Regulations and CME rules. CME completed its on-site review last week. At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011. CME fully discharged its auditing procedures in accordance with applicable procedures and standards and is working with regulators and authorities to investigate these transfers.
CME conducts regulatory financial examinations in accordance with the Joint Audit Committee procedures and standards. http://www.wjammer.com/jac/ The focus of these examinations is to effectively monitor the firm’s financial records to determine the firm’s full segregation compliance and to monitor any necessary corrective action. CFTC regulations and CME rules require maintenance of excess segregated funds at all times. Clearing firms are not permitted to transfer funds from the segregated account which will result in an under-segregated condition. CFTC Regulations and CME Rules also require clearing firms to calculate their customer segregated position daily and notify both the CFTC and CME whenever it knows or should have known that the customer segregated position was under-segregated. None of MF Global’s reports reflected any under-segregated positions. The reports actually reflected excess segregated funds.
**Emphasis John Lothian News
Notification of Post-Relief Transfer Pursuant to Commission Regulations
This letter is in response to your letter, written on behalf of the Chicago Mercantile
Exchange (CME), dated November 2, 2011 (the CME Letter), notifying the Commission of the
CME’s intention to transfer certain customer positions as a result of the insolvency proceedings
of MF Global Inc. (MF Global), one of its clearing members.
**Also from the CFTC letter:
The CME, in its letter, estimated that, at the close of business on November 1,2011, MF Global’s current segregated funds requirement was approximately $5,445,839,890, and that there was a customer segregated funds shortfall at MF Global of $633,027,696, or a deficiency of approximately 11.6%. In order to minimize disruption to the markets and to protect the integrity of the marketplace and market participants, CME has worked to find clearing members who will accept MF Global segregated positions. CME has identified potential transferee FCMs who are willing to accept the transfer of all of MF Global customer segregated account positions of retail customers and substantially all of MF Global customer segregated accounts of institutional customers, but has not yet located transferee FCMs for all MF Global customer accounts of ”locals” who are members of an Exchange and act as liquidity providers.
The total amount of MF Global customer segregated funds on deposit at the CME is $2,434,265,227, and it is anticipated by CME that a proportionate share of the roughly $1,449,069,869, or approximately 60% of the MF Global customer segregated funds on deposit at the CME, would be transferred to the receiving clearing firms to margin the positions being transferred to them. That proportion would be based on the relationship of the SPAN risk plus short-option value less long-option value for the positions to be transferred for each transferee and the SPAN risk plus short-option value less long-option value for all of the MF Global customer positions cleared at CME. The balance of the MF Global customer segregated funds would be retained by CME pending further direction from the Commission and/or bankruptcy court.
CME anticipates that MF Global customer segregated account positlons will be transferred to two or more of the following five clearing members in good standing:ABNAMRO Chicago Clearing, ADM Investor Services, Dorman Trading, FC Stone, R.J. O’Brien & Associates, and/or Rosenthal Collins Group.
CME Group Awaits Approval to Move MF Global Funds to Customers
By Jesse Hamilton – Bloomberg
CME Group Inc., the largest futures market, has been working to move customer funds from MF Global Inc. brokerage accounts and is awaiting approval by a trustee of the Securities Investor Protection Corp., according to Anita Liskey, a CME spokeswoman.
SIPC: ‘MF Global Customer Funds Still Unaccounted for’
Securities Investor Protection Corp. chief executive and president Stephen Harbeck, who is overseeing the recovery of customer money at MF Global, tells FOX Business there is “no word yet on where the customer money is,”adding in an interview, “as of right now, we haven’t verified whether the assets are all accounted for.”
**Also of note: Skadden Arps Slate Meagher & Flom is now representing MF Global.
Regulators pushed MF Global on risky bets months ago
U.S. regulators started raising concerns about MF Global’s European sovereign debt exposure as early as June, according to a source familiar with the matter, four months before the company’s collapse into bankruptcy.
**Also from this story: “FINRA felt that regardless of GAAP, MF Global should recognize how much the market value of the sovereign debt-related holdings had declined, and consulted with the U.S. Securities and Exchange Commission, the source said.”
MF Global Customers May Wait Years for Money Back If Firm Sued, Grede Says
MF Global Holdings Ltd. (MF) customers may have to wait years to get their money back if the futures broker is sued, according to Frederick Grede, the liquidation trustee overseeing the bankruptcy of Sentinel Management Group Inc.
**From the article: “If litigation is involved it well could be years” for MF Global customers, he said.
MF Global Trustee Froze 150,000 Customer Accounts on Oct. 31
By Linda Sandler and Tiffany Kary – Bloomberg
The trustee liquidating broker-dealer MF Global Inc. froze 150,000 customer accounts on Oct. 31, of which 50,000 were commodities accounts, the trustee said in a bankruptcy court filing. The brokerage’s deposits of segregated customer funds at the Chicago Mercantile Exchange totalled $2.5 billion, the trustee said. Collateral for customer segregated funds at the “clearing level” is about $1.5 billion, or about 60 percent of customer segregated funds on deposit at the CME, he said.
ICE ‘in Full Possession’ of MF Client Funds Tied to Trading
By JACOB BUNGE – Dow Jones
Derivatives market operator IntercontinentalExchange Inc. is “in full possession” of all MF Global Holdings Ltd. customer funds linked to trading on ICE’s markets, the exchange group’s top executive said Wednesday.
MF Global Trustee Seeks Approval To Transfer Customer Funds
By Dan Strumpf of DOW JONES NEWSWIRES
NEW YORK –The bankruptcy trustee overseeing the liquidation of MF Global Holdings Ltd.’s (MFGLQ) broker-dealer operations in the U.S. said he has filed an emergency motion with the court to approve the transfer of some customer funds to other clearing firms.
BRIEF-Trustee for MF Global broker-dealer seeks OK to transfer customer commodity positions
Trustee for MF Global Holdings Ltd broker-dealer unit says files emergency motion with U.S. bankruptcy court in Manhattan.
MF Global Trustee Talks With Brokers Over Customer Accounts
The trustee liquidating broker-dealer MF Global Inc. is in talks with brokerages that may take over customer accounts or buy “pieces of the business,” said Stephen Harbeck, president of the Securities Investor Protection Corp., which is overseeing the liquidation.
MF Global Funds Are Accounted For, Held by Brokerage, Lawyer Tells Judge
MF Global Holdings Ltd. (MF), run by former New Jersey governor and Goldman Sachs Group Inc. (GS) co- chairman Jon Corzine, has accounted for all its customer funds, said Kenneth Ziman, a lawyer for MF Global, citing the company’s management.
The Next Steps in the Inquiry on MF Global
The New York Times
With the Federal Bureau of Investigation looking into possible missing customer funds at MF Global, the bankrupt commodities and securities firm’s executives will be hiring lawyers and dealing with questions that go beyond just how the firm will be liquidated.
MF Global stops liquidation, customer transfers: sources
Brokers at MF Global early on Wednesday stopped processing liquidation orders from customers and transferring accounts to other brokerages, possibly to clear the way for a bulk transfer of positions, sources at the bankrupt brokerage told Reuters.
Non-U.S. MF Global positions wound down
While U.S. customers of MF Global are still basically frozen out or on liquidation-only awaiting word from the bankruptcy judge and CME Group, MF Global’s designated self regulatory organization (DSRO), non-U.S. exchanges have begun liquidating positions after shuddering MF Global’s business.
NFA Provides Guidance Re: MF Global
Commodity Pool Operators must provide investors with a disclosure regarding the fund’s assets held at MF Global. Additionally, if the CPO is soliciting new investors for the fund, the CPO will need to amend their disclosure document and have the disclosure document reviewed by the NFA prior to first use.
MF Global Seeks to Transfer Funds to Other Brokers
The bankruptcy trustee overseeing the liquidation of MF Global Holdings Ltd.’s broker-dealer operations in the U.S. said he has filed an emergency motion with the court to approve the transfer of some customer funds to other clearing firms.
MF Global’s fall puts spotlight on CME Group
By Gregory Meyer and Hal Weitzman
The case of the missing customer funds at MF Global is putting a spotlight on the failed broker’s de-facto supervisor, CME Group. CME, the largest US futures exchange operator, is also the designated self-regulatory organisation for more than 50 futures brokers, including MF Global. As such, CME had direct responsibility for making sure MF Global’s books were square.
MF Global may have hid recent fund transfers -CME
CME Group Inc , the main exchange regulator of bankrupt brokerage MF Global Holdings Ltd , said it appears that any transfer by the broker of its customer segregated funds happened after a CME audit last week, and may have been designed to avoid detection.
MF Global Told SEC, CFTC of Potential Customer-Account Lapses
MF Global Holdings Ltd. told U.S. regulators this morning there were potential “deficiencies” in some customer accounts, according to a joint statement from the Securities and Exchange Commission and the Commodity Futures Trading Commission.
MF Global’s Collapse Draws FBI Interest
The fallout from MF Global Holdings Ltd.’s collapse intensified as the Commodity Futures Trading Commission voted to issue subpoenas to the securities firm and the Federal Bureau of Investigation planned to examine whether client funds are missing, according to people familiar with the situation.
Corzine, top Obama fundraiser, under FBI investigation
By NBC’s Michael Isikoff
Jon Corzine, now the center of an FBI investigation into the handling of hundreds of millions of dollars invested in his securities firm, was one of the leading Wall Street fundraisers for President Obama’s campaign and suggested to investors that he might take a top administration post if the president were re-elected.
Is Jon Corzine going to jail?
Fortune Term Sheet
Jon Corzine is unlikely to ever again work in finance, after overseeing this week’s collapse of brokerage MF Global. But he may have much bigger things to worry about. Like going to jail.Federal officials reportedly say that MF Global has admitted to transferring hundreds of millions of dollars of client money into company accounts, most likely to cover investment losses.
What MF Global’s Customers Can Expect
Large creditors like JPMorgan Chase may not be alone in facing losses from failure of MF Global , if speculation of missing client funds turns out to be correct. MF Global filed for Chapter 11 bankruptcy on Monday, after negotiations of a rescue deal with Interactive Brokers Group were terminated, with various media reports that Interactive Brokers got cold feet because client funds were missing.
Bernanke pushes the blame onto regulators for MF Global: “We Are Not the Regulators”
A reporter inquired about MF Global’s inclusion on the Federal Reserve Bank of New York’s primary dealers list and the possibly effects of the company’s bankruptcy. Bernanke said MF Global was added to the NY Fed’s list of primary dealers in February of 2010 because it had met the criteria set forth to trade with the federal government. But, he emphasized, the primary dealer designation does not constitute a seal of approval.
The Next Steps in the Inquiry on MF Global
By PETER J. HENNING – Dealbook
With the Federal Bureau of Investigation looking into possible missing customer funds at MF Global, the bankrupt commodities and securities firm’s executives will be hiring lawyers and dealing with questions that go beyond just how the firm will be liquidated. The issue of whether there were any financial improprieties means the government will be digging through the firm’s books to see where the money went, and whether any records or reports were falsified. Here are some avenues of investigation the F.B.I. is likely to pursue, and the criminal statutes that could be invoked if there is evidence of intentional violations: Follow the Money
CFTC-SEC Statement on MF Global
Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA).”
MF Global: FBI Interest and More Lawyers
By Joe Palazzolo – WSJ
Let’s lead off with the news last night from the WSJ that the FBI is planning to examine whether MF Global client funds are missing in the fallout of the firm’s collapse.
MF Global Investments
Lehman Brokerage Fight Points to MF Global Future
Lehman Brothers Holdings Inc.’s European affiliate is angry at a move by the trustee unwinding the collapsed firm’s U.S. brokerage to block European creditors from recovering more than $8 billion, a dispute that could augur what’s in store for customers of MF Global Holdings Ltd.’s brokerage.
Gross: MF Global Collapse May Erode Confidence
Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co., said the collapse of MF Global Holdings Ltd. (MF) may further erode investor confidence.
Brokerage firms begin helping MF Global-affected customers
SINGAPORE: Brokerage firms affected by MF Global’s liquidation process have started taking steps to help their customers resolve their account problems.
MF Global Seeks to Transfer Funds to Other Brokers
By DAN STRUMPF And JACOB BUNGE – Dow Jones
NEW YORK—The bankruptcy trustee overseeing the liquidation of MF Global Holdings Ltd.’s broker-dealer operations in the U.S. said he has filed an emergency motion with the court to approve the transfer of some customer funds to other clearing firms.
Proposed Guidance for CPOs with Pool Funds Held at MF Global, Inc.
NFA recognizes the need for our CPO Members to keep their pool participants informed as to what has occurred with MF Global, Inc. (MF Global) and how it may affect future operations. In this regard, NFA, in consultation with the CFTC, is providing guidance on disclosures that CPO Members with pool funds held at MF Global must make to their participants. At a minimum, CPO Members must provide their pool participants with a disclosure statement that includes the disclosures summarized below. Members are also encouraged to provide any additional disclosures that are necessary given their specific business operations.
Famous Last Words? MF Global/NewEdge Letter to the CFTC, December 2010
In November 2010, the CFTC issued a proposed rule and request for comment regarding changes to Regulation 1.25, the list of approved investments for customer funds. Among the proposals was the elimination of foreign sovereign debt as a suitable investment. According to a letter co-authored by MF Global and NewEdge, “…the current permissible investments under Rule 1.25 have not, to our knowledge, resulted in any FCM’s inability to provide customers their segregated funds upon request or to continue as a solvent entity…”
Obama campaign may return funds from MF Global’s Corzine
Kim Dixon – Reuters
President Barack Obama’s re-election campaign would return the donations made by embattled MF Global chief Jon Corzine if he were charged with any wrongdoing, a campaign official said on Wednesday. Corzine, who is at the center of a storm over the securities firm’s bankruptcy this week, was a major fundraiser for Obama. The former Goldman Sachs chief has raised or “bundled” donations of at least $500,000 so far for Obama’s 2012 re-election effort.
5 MF Global-Style Meltdowns
The ongoing saga of MF Global’s bankruptcy took a turn Tuesday when reports surfaced that funds held in segregated customer accounts were missing. The revelation took Wall Street off guard, since keeping client assets quarantined from firm assets is sacrosanct at brokerage firms.
MF Global: 4 CFTC investigations, 3 CEOs, 4 CFOs, and 4 COOs since the Jul-07 IPO
The following is from a DI Report we published on MF Global Holdings Ltd on 22-Jun-2011 at which time we rated the company Medium Risk – Negative Bias.