Many were hoping that the weekend would bring some clarity to the MF Global situation. Unfortunately, things are, if at all possible, more muddled than ever.
While sentiment soared upon learning the CME had brokered a deal that would unlock some of MF Global client funds, as we pointed out last week, the rejoicing was largely misplaced, as the bulk of the funds, still in lock-up, would not be within access to these clients as they faced inevitable margin calls. The transfers began last week, and clients were initially told they’d be able to at least handle their open positions come Monday morning- one way or another. Then, Friday night, out comes another notice from the CME that set off a mass scare regarding the size and scope of the impending margin calls, only to clarify on Saturday that they were actually decreasing margin requirements to help neutralize the situation. Responding to the anger of MF Global clients and other market participants, the CME launched an informational page on the scandal. It seemed like, at the very least, clients would be able to get out of the positions that they’d been helplessly watching for the past week.
No such luck.
This morning, the CME released this notice on their site:
In order to ensure that all customers are treated fairly, and pursuant to approval granted by the CFTC and the Trustee, CME has directed its clearing members to delay distribution of transferred funds and the proceeds of the liquidation of any transferred positions until the calculation is completed, which is expected by the close of business Tuesday, November 8, 2011. This temporary measure is necessary to ensure that CME Clearing can properly verify that the correct amount of collateral was allocated to each of the customers involved in the bulk transfer of positions from MF Global.
“New” funds deposited by customers may be freely withdrawn. We will notify firms promptly as customers’ accounts are verified and the hold is lifted. This temporary measure will allow us to ensure all customers are treated fairly as we work with the Trustee. This plan has been discussed with and approved by the CFTC and the Trustee.
How adorable. The funds will be released the same morning as the grain report on acreage and yield. That should be a fun.
Adding to the problem is that this shift in accounts has left CTAs groping in the dark for their clients’ accounts (thankfully, no Attain clients held money at MF Global, with us having recommended a move out of the firm 2.5 yrs ago). The transfer to other clearing firms was done in such a way that the client accounts were never demarcated as part of a managed futures investment, and managers have reported to us difficulties in 1) finding the accounts to begin with, and 2) getting access to them. In many ways, these new clearing firms are being overwhelmed. They can’t just give anyone access to these accounts- especially as people question the sanctity of segregated accounts. They don’t have any kind of power of attorney notated on the newly acquired accounts, and with clients still finding out where they wound up in this mess, there is likely to be a continued lag in the administrative process- especially for those clients not working with a proactive introducing broker. For now, the standard line is that, until power of attorney is re-established for these CTAs and their clients, the client or broker must call the clearing firm directly to liquidate those trades- even if that can’t happen until Wednesday morning.
It’s bad enough that these clients don’t have the ability to manage their open positions, but the poor communication this industry has witnessed over the past week is absolutely stunning in its ineptitude. Misinformation, or lack of communication altogether, with clients and market participants from regulators and exchanges has led to a collective sense of confusion and outrage. The regulators and exchanges have done such a bad job of handling the situation that their members are already attempting to organize and gain representation so that they might be able to get in front of the bankruptcy trustee themselves.
The situation is nauseating to veterans of the industry, and reliable answers are few and far between. The best suggestion we can offer is to get in contact with your broker immediately to ensure your accounts are handled properly and that you are in possession of as much information as possible. If your broker’s communication skills are about as good as the regulators’ and exchanges’ have been over the past week, then it’s time to find a new broker.
While all of this continues to put the whole industry in a rather poor light, we continue to believe it is a one-time event driven by MF Global’s push into a more investment bank model, and likewise, a one-time event in terms of the regulators and exchanges issues in resolving it (given its unprecedented nature and huge scale). While it sounds somewhat Pollyanna to say ‘wow, this is a mess – but the rest of the industy is moving along just fine,’ that really is the case here. For those impacted- here’s hoping we can get some clarity sooner rather than later.