MF Global brokerage has customer shortfall of $600 million, CFTC says

November 2, 2011

MF Global’s commodity customer funds have a shortfall of about $600 million, an amount that the trustee for the bankrupt broker-dealer may recover, lawyers for the Commodity Futures Trading Commission said Wednesday.

At a hearing in U.S. Bankruptcy Court in Manhattan, MF Global’s trustee won permission to transfer 50,000 accounts where customers of the failed brokerage have 3 million positions and more than $100 million at stake, saying the move will help avoid liquidations.

The trustee, James Giddens, has said he froze 150,000
customer accounts, including 50,000 commodities accounts, on Monday at the broker-dealer run by Jon Corzine, the former New Jersey governor and senator.

In a court filing Wednesday, Giddens asked Judge Martin Glenn to let him transfer some of the customers’ commodity positions to futures merchants, saying the move will help satisfy claims promptly. Asking for the transfer of segregated customer positions, he said he was acting on the advice of the Commodity Futures Trading Commission.

MF Global Holdings, the brokerage’s parent, filed for bankruptcy protection in Manhattan on Oct. 31. Giddens is tasked with liquidating MF’s broker-dealer unit for the Securities Investor Protection Corp. to protect customer assets.

More than one firm would have to be found to take over the accounts, as none of the existing 125 futures commission merchants “would be willing and able to handle the variety of accounts” at MF Global, Giddens said, citing advice from CME Group, which operates a derivatives exchange.

Some accounts may not find a home and may have to be liquidated, Giddens said.

Referring to an “apparent shortfall” in segregated customer funds at the broker-dealer, CME said the funds may have been transferred after a CME audit of the funds, in violation of regulatory rules.

“It now appears that the firm made subsequent transfers of customer-segregated funds in a manner that may have been designed to avoid detection,” as the transactions had not been reported to regulators until Monday, it said.

— Bloomberg News

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