MF Global Clients Get Relief But, No Resolution
There was welcome news Thursday for some former clients of MF Global Holdings.
The judge hearing the motion to transfer cash accounts from the now defunct MF Global to other brokerages has approved the request. While certainly a step in the right direction, there are still many issues that need to be resolved.
What has been agreed is that cash only accounts worth about $869 million will be transferred and that clients will receive sixty cents on the dollar or, $520 million dollars in cash. The 'Wall Street Journal' is reporting that the cash, “… would be transferred starting in about a week.” Forty percent of the cash on deposit will not be dispersed.
But, for clients that had cash in accounts with open positions or, clients that had requested a return of all their money before the company went bankrupt, the story is far from over.
For clients that had cash in accounts with open futures trading positions, margined positions and other assets—what happened Thursday does not impact them. For example, if an investor had $67,000 in cash in an account in excess of a fully margined position on S&P futures, for instance, their holdings are still in limbo.
Clients that saw MF Global on the ropes and didn’t want to stay for the final act are the most frustrated. Traders and small investors that had asked for their money back in the week leading up to the bankruptcy were mailed checks that either bounced or, the funds did not clear.
These investors are likely left out of the settlement today as they had no cash or, less cash in their accounts on October 31—the date most likely to become the date of record.
What is to become of this money? It is still to be determined. Why should every investor care? Here’s why:
Let’s say that you deposited $100,000 in cash, in a segregated account at a registered Futures Commission Merchant (FCM) in America, in 2011. That means, money in your name, in your account and according to an opening account document from MF Global dated 2008, “Under no circumstances will the trading activity in this account be for the beneficial ownership or interest of other parties.” And then you couldn’t get that money back.
Seems impossible but, that is exactly what happened to some clients of MF Global. A document for the office of the Trustee for the liquidation of MF Global Inc. states that it is not clear "...how long it will be before the Trustee is able to return additional assets to customers."
The CFTC has ordered an audit of all Futures Commission Merchants (FCMs). MF Global was audited by the CFTC, just ahead of its bankruptcy.
And as clients of MF Global are now painfully aware, CFTC Regulation 1.25 allows segregated funds to be used for other purposes including “…general obligations of a sovereign nation”. The CFTC is expected to address this rule at its meeting on December 5.
Audits and rule-making are two ways to start restoring confidence to the futures markets. Getting money back to investors who were simply holding cash on account is another.