Bloomberg News

MF Traders Blocked by CME, Intercontinental Has Clients Fleeing

November 01, 2011

Oct. 31 (Bloomberg) -- MF Global Holdings Ltd.’s bankruptcy is sending some of the firm’s customers rushing for new clearing brokers after CME Group Inc. and Intercontinental Exchange Inc. blocked them from new business on their futures markets.

The holding company for the futures brokerage and broker- dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine sought court protection today, less than a week after reporting a record quarterly loss and disclosing a $6.3 billion wager on European sovereign debt. The firm was also suspended from conducting business with the New York Federal Reserve as a primary dealer.

“It’s a real mess, and it’s all hands on deck,” said Jack Scoville, a vice president at Price Futures Group in Chicago, which used MF as its primary clearing firm. “We’re moving out of MF as fast as we possibly can. Everybody is.”

MF Global customers who want to liquidate a position are being told to contact the New York-based firm, according to spokespeople for the exchanges. CME Group, owner of the New York Mercantile Exchange, and Intercontinental Exchange’s U.S. and European markets said they’ve limited all trading for customers of MF Global to liquidation only. Establishing new positions is barred. Both exchange owners cited MF Global’s financial condition for limiting access.

“Until further notice, CME Group will no longer recognize MF Global or any of its divisions as a guarantor for purposes of floor trading privileges,” the Chicago-based exchange owner said in an e-mailed statement today. Intercontinental Exchange limited MF Global from its U.S. and European exchanges as well as its energy over-the-counter clearing business, according to the Atlanta-based company.

Trading Customers

“The process is on to move to new clearing houses,” said Ray Carbone, president of Paramount Options Inc. in New York, which did business with MF Global.

At the end of August, MF Global’s futures trading customers had $7.3 billion on deposit with the firm, according to data compiled by the Commodity Futures Trading Commission. Under U.S. law the client funds are kept in segregated accounts and protected in the event the broker files for bankruptcy.

The filing caused turmoil in commodity markets, Scoville of Price Futures said, with MF Global active in contracts from oil to wheat.

“MF is in the top five in clearing for commodities, so it’s not an insignificant thing,” he said.

Eurex, Europe’s largest futures exchange, said MF Global U.K. Ltd., the clearing member on its market, is fulfilling its clearing obligations, according to an e-mailed statement.

‘Swift Return’

MF Global U.K. entered the special administration regime, with KPMG LLP’s Richard Fleming, Richard Heis and Mike Pink being named joint special administrators, the Financial Services Authority said in a statement today. The administrative regime will allow for “the swift return of client assets,” the FSA said in the statement.

MF Global listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Its finance unit, MF Global Finance USA Inc., also filed.

“The boards of directors of both entities authorized the filing of the Chapter 11 petition in order to protect their assets,” the companies said today in a statement.

MF Global’s board had met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. It was stopped from doing new business with the New York Fed until it shows it’s able to fulfill its responsibilities as a primary dealer, according to a statement on the regulator’s website before the filing. Trading in MF Global’s stock was also halted.

Unsecured Creditors

The largest unsecured creditors include JPMorgan Chase Bank NA, as trustee for holders of $1.2 billion in debt, and Deutsche Bank Trust Co. as trustee for holders of $690 million in debt.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 4 cents to 46 cents on the dollar at 1:46 p.m. in New York, for a yield of 27.1 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its shares, which were halted today, fell 16 percent to $1.20 on Oct. 28 after reaching a low of 99 cents.

--With assistance from Tiffany Kary and Moming Shou in New York, Joseph Richter in Washington, Nandini Sukumar and Edward Evans in London. Editors: Pierre Paulden,

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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