MF Global 2010: Save us from MF Global 2011 | FT Alphaville

MF Global 2010: Save us from MF Global 2011

What complications might the alleged commingling of accounts have for the bankruptcy of MF Global?

Well, let’s ask… MF Global!

Back in February 2010, then under the leadership of Bernie Dan, the broker wrote the following in a letter to the CFTC (our emphasis):

“Specifically, we are concerned that in the event of an FCM default where segregated funds cover both  futures and other products accorded 4d treatment, (i) the risk of legal uncertainty may threaten the integrity of the section 4d customer segregated account and (ii) a combined account may delay or prevent the transfer of exchange-traded positions to a solvent FCM. Regardless of how a bankruptcy court may ultimately decide this issue, the legal uncertainty raises the likelihood of complex litigation, inevitably delaying or preventing the return of futures customers’ funds or the transfer of exchange-traded positions from the combined futures/cleared OTC account to a solvent FCM.”


Throughout the long history of regulated futures trading in the United States, federal law has mandated the segregation of futures customers’ funds held by FCMs and depositories – including clearing houses. Futures customers have come to expect and rely on this protection – especially in the recent past. As the treacherous events of the last 18 months have unfolded, our firms, like many others, have been increasingly pressed by futures customers to reassure them of this critical financial safeguard. The Commission should be extremely wary, therefore, of any developments that could undermine futures customers’ confidence that their funds are protected.

So, the future eighth-biggest bankruptcy in US history was then petitioning the CFTC to not allow futures commission merchants (FCMs) to commingle CDS customer accounts. MF Global was thus referring to a specific group of financial products — the final regulation of which is still pending the Dodd-Frank implentation process — but it was also making a general point (our emphasis):

“No sector of the financial services industry has withstood the recent painful financial crisis – the ultimate stress test – as well as the US futures industry. This is no accident. The segregation of futures customer funds and the confidence it has engendered are critical reasons for our resilience in these troubled times. At this time, MF Global and Newedge are not satisfied that the risks to futures customers’ funds and to our own guaranty deposits – risks we never signed up for – may adequately be assessed or contained. Under all of these circumstances it is fundamentall unfair to expect futures customers to be exposed to these risks. It is for all these reasons that MF Global and Newedge – dynamic competitors in futures and other financial services – come together to respectfully but strongly urge the Commission to deny the CME’s petition at this time.”

Tie us to the mast!

(H/T Shahien Nasiripour.)

— By Cardiff Garcia and John McDermott

Related link:
“The protection of its customers’ funds is MF Global’s paramount concern” – FT Alphaville