Anyone pulling money out of MF Global?

Quote from steve0617:

Yes, and I've read the SIPC site over and over again.

*Nowhere* does it say a cash position held inside a futures account is NOT covered. It does say that commodities and futures contracts held will NOT be replaced like securities would (eg they replace the actual security held, not the cash that security was worth if lost to bankruptcy).

But it does not say anywhere, that a cash position, held in a futures account, and then is lost through bankruptcy of the firm, is NOT covered.

I'm reading it's covered. Please provide a link if you disagree.

And let's not forget, this assumes that there is actual money missing from the MF accounts. The SIPC insurance won't be needed if there isn't any actual money gone. Using customer funds doesn't *automatically* mean they're gone. And I've never seen any actual announcement that that's the case. The NYT story saying 'sources' say money is missing and the lawyer for MF quoting MF management that it's not.

No SIPC release, which is only thing I'm listening to, has said money is actually missing.
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I am corresponding with guys at SIPC. They say that since cash in my account was generated by trading crude oil futures, and since futures are not a security, my account isn't covered. Heres what they said

"“Crude oil futures” traded on the CME would appear to be futures contracts, and therefore, not “securities” protected under the Securities Investor Protection Act. Nevertheless, in due course, the Trustee will mail claim forms to customers and other creditors of MF Global, and if you have a claim against MF Global, you should file a claim with the Trustee. The Trustee will evaluate your claim and will notify you whether or not your claim is allowed and in what amount, if any."
 
http://www.reuters.com/article/2011/11/02/us-mfglobal-trades-idUSTRE7A163Y20111102

(Reuters) - Brokers at bankrupt MF Global have stopped processing liquidation orders from customers or transferring accounts to other brokerages, but it was not clear why, market sources told Reuters on Wednesday.

After being allowed on Tuesday to resume limited trading solely to liquidate positions on behalf of customers, two sources at MF Global told Reuters they had been told to stop that activity. Separately, another broker said MF Global customers were now also unable to transfer accounts to another clearing party.

The stop-start effort to untangle MF Global's substantial customer accounts has frustrated clients and constricted trading in some markets. It may be that regulators and exchanges are attempting to move customer accounts in bulk in order to free up positions more quickly, some traders said.
 
Quote from usman88:

I am corresponding with guys at SIPC. They say that since cash in my account was generated by trading crude oil futures, and since futures are not a security, my account isn't covered. Heres what they said

"�Crude oil futures� traded on the CME would appear to be futures contracts, and therefore, not �securities� protected under the Securities Investor Protection Act. Nevertheless, in due course, the Trustee will mail claim forms to customers and other creditors of MF Global, and if you have a claim against MF Global, you should file a claim with the Trustee. The Trustee will evaluate your claim and will notify you whether or not your claim is allowed and in what amount, if any."
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I'm sorry. I don't seen *anywhere* that 'cash in my account was generated by trading crude oil futures' isn't covered in what you posted. By all means, if they did say the cash itself is not covered, PLEASE post that.

They *do* say the <i>futures contracts themselves</i> are not covered, which is true. If you held oil futures contracts and never closed them out (or were not able to) prior to the bankruptcy, then those contracts would not be replaced. Remember, the SIPC offers to replace the physical security ownership itself (and securities only. Not commodities, futures or currency <i>positions</i>), not the value of that security. If the security has collapsed in value, tough. But kick ass if it actually went up after the bankruptcy occurred.)

But nowhere does it say, in what you posted, that the cash itself is not covered.
 
Exactly, if money is missing it will first be sucked out of places to make the customers accounts whole. The only thing that scares the sht out of me is only 500k protection...
 
Quote from steve0617:

I'm sorry. I don't seen *anywhere* that 'cash in my account was generated by trading crude oil futures' isn't covered in what you posted. By all means, if they did say the cash itself is not covered, PLEASE post that.

They *do* say the <i>futures contracts themselves</i> are not covered, which is true. If you held oil futures contracts and never closed them out (or were able to), then those contracts would not be replaced. Remember, the SIPC offers to replace the physical security ownership itself (and securities only. Not commodities, futures or currency <i>positions</i>), not the value of the that security. If the security has collapsed in value, tough. But kick ass if it actually went up when the bankruptcy occurred.)

But nowhere does it say, in what you posted, that the cash itself is not covered.
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I will not be able to paste here the chain of email correspondence I had with SIPC due to privacy reasons but I did told them specifically that my account had "Cash only, no positions, and all I did in my account was trading crude oil futures". Their reply included that cash and cash generated by trading "non-securities" is not covered.
 
Quote from steve0617:

Yes, and I've read the SIPC site over and over again.

*Nowhere* does it say a cash position held inside a futures account is NOT covered. It does say that commodities and futures contracts held will NOT be replaced like securities would (eg they replace the actual security held, not the cash that security was worth if lost to bankruptcy).

But it does not say anywhere, that a cash position, held in a futures account, and then is lost through bankruptcy of the firm, is NOT covered.
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Based on the way IB say they sweep funds:

It would seem the broker cant directly use the cash in a SIPC covered account for futures margin, the money has to be moved into your futures account. At some point the money would have to be moved back to the securities account to regain protection.

If the firm has not got around to moving your money back and declares itself bankrupt your cash wont be covered by SIPC.

One would hope everytime you free up margin in your futures account your broker moves the cash back to the securities account as soon as possible.

If MF Global did this, like IB claim to do, then the customers who only ever traded futures should also be covered for the free cash they have up to SIPC limits.

This assumes SIPC are happy for firms to do this. Someone like IB must have checked with SIPC to see if this process is legit before implementing it and publicizing it as positive point in their marketing.
 
If you check the trustee site (http://dm.epiq11.com/MFG/Project/default.aspx) you will find they have a motion pending to basically transfer open positions and minimum capital to support the position. They probably stopped that before because they realized they did not have the authority to do it.

Another interesting point from the motion is that there are about 50,000 commodity accounts. From the motion:

As a result of the apparent segregation violations and the suspension of
clearing privileges, more than 150,000 customer accounts essentially were frozen on October 31,
2011, of which more than 50,000 accounts were regulated commodities customer accounts. The
CME estimates that MFGI’s current segregated funds requirement is approximately $5.45
billion. Moreover, the total amount of MFGI customer segregated funds on deposit at the CME
is approximately $2.5 billion, and the clearing-level segregated collateral is approximately $1.5
billion or approximately 60 percent of the MFGI customer segregated funds on deposit at the
CME.

It is my understanding, and someone help me if I'm wrong, that the broker only transfers money to the CME to cover open trades. So by this reckoning at least $2.5 bill is available for immediate transfer back to customers. If nothing else, they should at least give us back half our funds for now.

Another interesting point of the motion is that the trustee is "... extending the
Trustee’s authorization under the MFGI Liquidation Order (as that term is defined herein) to
operate the business of MFGI in the ordinary course until 6:00 p.m. on November 4, 2011" that seems to be an indication that they are trying to get a major distribution done by Friday.
 
Quote from usman88:

I am corresponding with guys at SIPC. They say that since cash in my account was generated by trading crude oil futures, and since futures are not a security, my account isn't covered. Heres what they said

"“Crude oil futures” traded on the CME would appear to be futures contracts, and therefore, not “securities” protected under the Securities Investor Protection Act. Nevertheless, in due course, the Trustee will mail claim forms to customers and other creditors of MF Global, and if you have a claim against MF Global, you should file a claim with the Trustee. The Trustee will evaluate your claim and will notify you whether or not your claim is allowed and in what amount, if any."
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It would seem IB get around this by having 2 accounts for you, one a futures account and one a securities account.

Profits from futures trading are always booked to your futures account. Then moved to your securities account as a cash transfer.

This would keep the securities account pure, ie no direct profits
from futures trading.

Did MF Global do something similar?

My IB statements used to show some sort of transfers are going on behind the scenes. Ive always wondered what those were, now i think i know.

I dug up an old IB account statment, (new account statements no longer show these 'behind the scene' cash sweeps).

Date Description Amount Amnt In Base
02/08/2005 Net cash moved to securities account for date 2005-08-02 -39,363.56 -21,834.97
02/08/2005 Net cash moved to commodities account for date 2005-08-02 39,363.56 21,834.97
 
A reply

"Under SIPA, cash specifically refers to cash in a securities brokerage firm account from the sale of or for the purchase of securities. Cash from the sale of or for the purchase of investments that are not "securities" is not protected. Based on the information you have provided, it appears that you are not entitled to SIPC protection.

However, once claim forms are available, you should file a claim with the Trustee. The Trustee will evaluate your claim and will notify you whether or not your claim is allowed and in what amount, if any. "
 
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