When a disaster strikes, there’s a certain amount of breath holding that takes place until the damage is assessed. Will it be worse than we imagined, or will we find that things aren’t quite as bad as we had feared in our worst-case scenarios? Only once the panic has subsided and pieces picked up can we make that determination. And such has been the case of the financial collapse of the futures broker MF Global, except in this instance the “picking up” phase has dragged out for well over a year. But as the picture of what comes next has become clearer, it has also become rosier. The Wall Street Journal reports:
Trustee James Giddens, who represents customers of the failed firm’s brokerage unit, said MF Global customers in the U.S. who invested on domestic exchanges could receive up to 93 cents on the dollar of their cash back, according to the filing in the U.S. Bankruptcy Court in the Southern District of New York.
Getting 93% back is better than 81% (the previous estimate), but still worse than 100%. Nevertheless, 7% is a loss that, while painful, isn’t likely to be life-ending for many people. But the news could get even better, with a plan in the works that might mean full restitution for customers:
…A group of MF Global creditors filed a plan of liquidation for the failed brokerage firm. The proposal outlined a plan to pay back creditors of MF Global’s general estate within a year and could restore the accounts of brokerage customers to 100% within months, according to a person familiar with the group.
The filing was made by a group of creditors led by Silver Point Capital LP, Cyrus Capital Partners LP and Knighthead Capital Management LLC. Those creditors own about 65% of MF Global’s $2.2 billion in unsecured debt, according to the filing.
This could potentially be good news for PFG customers, too, by setting the legal precedent that futures customers get paid back first, before any proceeds from the bankruptcy go to general creditors. That’s the letter of the law written in the CFTC regulations, but with high priced lawyers fighting to get around the letter of the law – we’ll take whatever we can get that supports following it.
Of course, along with the sigh of relief that restitution would bring, there will still be reason for frustration. Even with 100% of the money returned, customers have still lost access to much of their money for over a year. If “protection” means getting you some of your capital back sometime in the next few years… well, that’s a pretty loose definition of the word, in our opinion.
So this news may be a spot of bright news in what has been a long gloomy story, but it should serve as a reminder of what’s at stake in the futures industry. It’s why we suggested that the CME purchase all PFG customer’s claims at face value after its collapse, it’s why we’ve been strong advocates of an insurance fund for futures customers, and it’s why Attain CEO Jeff Malec is running for the NFA board. Because even as we pick up the pieces from the disasters we’ve faced, we can’t lose sight of the work that remains to be done.