Refco News Announcement

Maverick74 · Oct 14, 2005

The following notice was sent out by the Depository Trust Company tonight, October 13, 2005: http://www.dtc.org/impNtc/com/com_8652.pdf. Additionally, there is a similar notice from the NSCC below.

The Depository Trust Company

Important

B#: 8652

Date: October 13, 2005

To: All Participants

Category: Compliance

From: General Counselâs Office

Attention: Managing Partner/Officer, Cashier

Subject: Refco Securities, LLC â Participant #116

Refco Securities, LLC â SEC, Participant #7261

Refco Securities, LLC (âRefcoâ), an indirect subsidiary of Refco Inc. and a Participant of The Depository Trust Company (âDTCâ) has informed DTC that it will begin the process of winding down its business.

Refco, which is in full compliance with all of the DTC Participant requirements, remains in business for the purpose of winding down its outstanding positions. Refco has represented to DTC that, as of today, it will not be engaging in any new business except to the extent necessary to offset and effectively liquidate outstanding long and short proprietary and customer positions.

This is to inform you than at the present time, DTC is continuing to act for Refco in an effort to assist Refco in performing an orderly wind down of its DTC activity.

DTC will keep Participants informed of ongoing developments regarding Refco.

***

A# 6127

P&S# 5697

DATE:
October 13, 2005

TO:
ALL PARTICIPANTS

ATTENTION:
MANAGING PARTNER/OFFICER,

OPERATIONS PARTNER/OFFICER,

DIRECTOR OF OPERATIONS,

MANAGER P&S DEPARTMENT

FROM:
General Counselâs Office

SUBJECT:
Refco Securities LLC (NSCC Member No. 0116)

Refco Securities, LLC (âRefcoâ), an indirect subsidiary of Refco Inc., a Member of National Securities Clearing Corporation (âNSCCâ), has informed NSCC that it will begin the process of winding down its business.

Refco, which is currently in full compliance with NSCCâs membership requirements, remains in business for the purpose of winding down its outstanding positions. Refco has represented to NSCC that, as of today, it will not be engaging in any new business except to the extent necessary to offset and effectively liquidate outstanding long and short proprietary and customer positions.

This is to inform you that at the present time, NSCC is continuing to act for Refco in an effort to assist Refco in performing an orderly wind down of its NSCC activity.

NSCC will keep members informed of ongoing developments regarding Refco.

Apex Capital · Oct 14, 2005

Mav, I take it that this has to do with REFCO Capital Markets and has nothing to do with the segregated account futures business known as REFCO LLC since the DTC only deals in securities?

Maverick74 · Oct 14, 2005

Quote from Apex Capital:

Mav, I take it that this has nothing to do with the segregated account futures business known as REFCO LLC since the DTC only deals in securities?

I'm just the messenger. I copied and pasted the e-mail I received. The statement was issued tonight. I can't add anything else to what was reported in the memo.

Apex Capital · Oct 14, 2005

Quote from Maverick74:

I'm just the messenger. I copied and pasted the e-mail I received. The statement was issued tonight. I can't add anything else to what was reported in the memo.

I think that some clarification is in order here.

I believe that this has to do with the Capital Markets Group which deals in foreign-exchange, fixed-income over the counter transactions, Prime Brokerage, securities trading and lending services.
This is why the DTC has been notified and issued the above statement.

The DTC is not engaged in futures related transactions.

rufus_4000 · Oct 14, 2005

Quote from Apex Capital:

Mav, I take it that this has to do with REFCO Capital Markets and has nothing to do with the segregated account futures business known as REFCO LLC since the DTC only deals in securities?

While the DTC / NSCC announcement would have nothing to do Refco as the FCM, it would impact the FCM business in a different way.

Plenty of futures traders (myself included), especially index futures traders, would trade the index futures vs the ETF or a basket, therefore the margin requirements from the Futures SPAN margin calculation and the Security margin are "offset" to create the true "cross margin" requirements. Needing to wind down the Securities business would severely impact Refco FCM's ability to service cross-margin professional clients. These type of clients constitute a high percentage of the daily volume.

Another type of traders are the bond future traders that trade the futures vs the cash treasuries, since Refco Capital Markets include the Fixed Income capabilities as well. Refco as a whole would also not be able to service the cross-margin bond futures traders. These two classes of traders generate very high volumes, and consequently generate good commission and financing revenues.

Apex Capital · Oct 14, 2005

Quote from rufus_4000:

While the DTC / NSCC announcement would have nothing to do Refco as the FCM, it would impact the FCM business in a different way.

Plenty of futures traders (myself included), especially index futures traders, would trade the index futures vs the ETF or a basket, therefore the margin requirements from the Futures SPAN margin calculation and the Security margin are "offset" to create the true "cross margin" requirements. Needing to wind down the Securities business would severely impact Refco FCM's ability to service cross-margin professional clients. These type of clients constitute a high percentage of the daily volume.

Another type of traders are the bond future traders that trade the futures vs the cash treasuries, since Refco Capital Markets include the Fixed Income capabilities as well. Refco as a whole would also not be able to service the cross-margin bond futures traders. These two classes of traders generate very high volumes, and consequently generate good commission and financing revenues.

Very good points, Rufus!

rufus_4000 · Oct 14, 2005

Quote from Maverick74:

I'm just the messenger. I copied and pasted the e-mail I received. The statement was issued tonight. I can't add anything else to what was reported in the memo.

By the way, thanks for posting the memo. It has been sometime since I was on the sell side, when my inbox used to flooded daily by the announcements from CME CC / DTC / NSCC / FICC / LCH / TCC. Now I flipped over to the trading side, I am usually too lazy or too tired from a day of trading to check their web sites for announcements.