James Koutoulas, chief executive of Typhon Capital Management in Chicago, said 85 percent of his clients’ money was tied up in MF Global, about $55 million.
About 150,000 accounts — from investors big and small — were left in limbo in the firm’s rapid demise. Regulators are in the midst of trying to transfer about a third of the accounts to other commodities brokers and securities firms. That usually takes place in a matter of days or weeks.
But, as in any bankruptcy filing, there are complications. Regulators say they are looking for roughly $600 million in client funds that they believe are missing. Before clients can get full access to their funds, the regulators are first going to have to determine where that money is and, then, seek to recover it.
Also unresolved is whether the money in some clients’ accounts was mixed in with the firm’s money, as regulators have contended. That could lead to further litigation over the ownership of money in the accounts.
And then there is the fact that most of the firm’s investments were not in securities, where the dollar value of an investment is clear, but in commodities, where investors put up what is essentially a down payment on what a commodity will be worth on a future date. Sorting out who is owed what will also take time.
While MF Global may not have been a household name, it was respected in the commodities and futures markets. It provided the essential service of holding money and clearing trades.
The firm’s brand name was why smaller clients said they did not worry whether their money would be safe. Mark Tucker, who lives in the English seaside village of West Runton, population 1,633, manages rental properties by day. But he said he had been trading options for the last 18 years and had $50,000 with MF Global (and another $50,000 with another clearinghouse).
He has not had access to his account since Monday and was worried about some of the options he bought before the firm’s bankruptcy filing. They are bets that the prices of crude oil, coffee and sugar will fall. “It’s not a comfortable position,” he said. “By definition, the potential for losses on short options is limitless.”
Like many clients, he is trying to separate rumor from reality. He had heard that his account would be moved to another broker. He said his broker had been “trying to reassure me the only reason it hasn’t happened is they have 50,000 of these accounts and it should move over in the next 24 to 48 hours, but that’s what they told me 24 to 48 hours ago.”
So do clients of other commodities clearinghouses need to worry about the safety of their money?
SITUATION James W. Giddens, a partner at Hughes Hubbard Reed and the court-appointed trustee in the case, said his group was working closely with the Commodity Futures Trading Commission and the Securities Investor Protection Corporation to transfer accounts to other commodity brokers. He said clients would be notified “if and when their accounts have been transferred.”
The court has approved the transfer of 50,000 commodities accounts to other brokers because those are the easiest to move and the most likely to be picked up. A spokesman for the trustee said that the selection of which accounts would be moved was led by the CME Group, the giant exchange where MF Global did business. On Friday, the CME Group announced that 15,000 accounts had been moved.
But even the clients whose accounts are transferred will not get all their money back immediately. Given that some of the funds involved are contested, clients will have access to only about two-thirds of their accounts’ value. This is a common practice to ensure that there is some money left to pay claims against MF Global.
MF Global was also a registered broker-dealer, like Fidelity and Schwab. The future of the securities accounts it held is less clear. Stephen Harbeck, chief executive of SIPC, said he believed there were only 6,000 securities accounts. So far, he said, the trustee had not found another home for them because they did not have a large amount of assets and a trading history. In other words, these accounts may not pay large fees and could be more of a hassle than they are worth to another firm.
Article source: http://feeds.nytimes.com/click.phdo?i=ea56119aaa286e6576230341b5dbe052