Anyone pulling money out of MF Global?

cashcarewins · Nov 2, 2011

Here is the link describing the order http://www.reuters.com/article/2011/11/02/mfglobal-hearing-idUSN1E7A11SI20111102

My previous calculation was close, this article says there is currently an 11% shortfall. So you would think they could distribute 89% of our funds. But, in a CYA move, they are only distributing 60% for now.

benwm · Nov 2, 2011

Kobak said accounts must be transferred by Monday morning or face liquidation. So Friday could get some wild moves, especially with it being NFP/employment report...mass liquidation occurring during the most volatile day of the month, with this backdrop of Greece uncertainty going into the weekend. And if ECB cuts 1% tomorrow(surprise!) that would reap havok.

Wow. Talk about perfect storm.

Ok, so they hold back 40% of the cash...and if you were 100% cash in your futures account it seems a straightforward procedure.

But what if there was negligible cash in your account but you were holding significant open positions, ie. all of the cash essentially used up as margin for your futures positions:-

Would they only transfer 60% of the futures positions and liquidate 40% of your positions by Friday or does the 40% only refer to the excess liquidity (above and beyond the required margin requirement)?
Messy.

Some November futures will likely be reaching delivery day soon (metals) - I wonder how they are going to deal with delivery for frozen retail accounts...

benwm · Nov 2, 2011

came from the Zero hedge comments section:-

11. The Trustee has determined that the Account Transfers will contribute to the prompt satisfaction of customer claims and the orderly liquidation of MFGI. Without effecting these transfers, the positions are required to be liquidated promptly and in an orderly manner. As set forth more fully below, the customersâ positions are required by Part 190 Regulations to be liquidated if they are not transferred to a transferee FCM before the close of business on Friday, November 4, 2011 (the fourth business day after the entry of the MFGI Liquidation Order). The liquidation of these customer commodity positions in all likelihood will negatively effect the net value to the customers and the markets in general.

cashcarewins · Nov 2, 2011

What is a bit unclear is, if you have no positions, what happens. It seems like you would be best off being 100% margined, than they would have to transfer 100% of your position and equity.

jficquette · Nov 2, 2011

I pulled my billions out last month.

benwm · Nov 2, 2011

Quote from cashcarewins:

What is a bit unclear is, if you have no positions, what happens. It seems like you would be best off being 100% margined, than they would have to transfer 100% of your position and equity.

I tend to agree, but subject to low market volatility i.e. your positions not requiring additional margin to be posted this week (impossible on frozen account of course) presumably resulting in forced liquidation by the exchange...

Plus the fact that transfer of positions must occur by Friday (transfer deadline) so by Monday morning your account (what was left of it) will be 100% cash if you have not transferred in time anyway.

I am by no means crystal clear on the process at work here, but it seems the legal discussions are trying to balance the rights of the creditors (JP Morgan $1BN+ owed), futures customers that have been victims of fraud, and the stated goal of reducing the size of the non-transferred open futures portfolio to zero by Monday morning.

cashcarewins · Nov 2, 2011

Quote from benwm:

, but it seems the legal discussions are trying to balance the rights of the creditors (JP Morgan $1BN+ owed), futures customers that have been victims of fraud, and the stated goal of reducing the size of the non-transferred open futures portfolio to zero by Monday morning.

The creditors have no rights to the customer funds. The trustee is currently only working on the brokerage (customer fund) side. Customers probably have rights to funds fraudulently conveyed to other entities within MF. That is why I don't see the need to limit the distribution to 60% when 89% of the funds are available. The only real question is how much of the 11% will the trustee recover, and will the CME make up the difference eventually. (I say yes, and they'll add a couple pennies / transaction to cover it.)

atticus · Nov 2, 2011

Quote from cashcarewins:

The creditors have no rights to the customer funds. The trustee is currently only working on the brokerage (customer fund) side. Customers probably have rights to funds fraudulently conveyed to other entities within MF. That is why I don't see the need to limit the distribution to 60% when 89% of the funds are available. The only real question is how much of the 11% will the trustee recover, and will the CME make up the difference eventually. (I say yes, and they'll add a couple pennies / transaction to cover it.)

I doubt it's written in stone that 89% is accounted for. I'd bet you'll all see 100% before year's end due to the fact that Corzine was running the show.

benwm · Nov 2, 2011

Quote from cashcarewins:

That is why I don't see the need to limit the distribution to 60% when 89% of the funds are available.

I'm guessing because the market doesn't stand still. Those combined market positions might have required an additional $500 million on Monday in margin that was not forthcoming. Every day that passes is another day when CME would need to make MTM margin adjustments - and where does that money come from? I'm guessing JP Morgan's lawyer will not want it coming from outside of the futures customers segregated funds.

Of course those futures positions might have made money for the MF Global customers also - but probably not when you consider that they are in semi-liquidation mode with a race against the clock to beat Friday's deadline. At what point do they decide that it is not possible to transfer certain positions and they enter liquidations mode for real? Thursday afternoon? Friday morning? Friday after non farm payrolls?

cashcarewins · Nov 2, 2011

Quote from benwm:

I'm guessing because the market doesn't stand still. Those combined market positions might have required an additional $500 million on Monday in margin that was not forthcoming. Every day that passes is another day when CME would need to make MTM margin adjustments - and where does that money come from? I'm guessing JP Morgan's lawyer will not want it coming from outside of the futures customers segregated funds.

Of course those futures positions might have made money for the MF Global customers also - but probably not when you consider that they are in semi-liquidation mode with a race against the clock to beat Friday's deadline. At what point do they decide that it is not possible to transfer certain positions and they enter liquidations mode for real? Thursday afternoon? Friday morning? Friday after non farm payrolls?

Yes, but you can't take my segregated account and apply the money to another customers deficit. The exchange would have to go directly after the defaulting customer.