The MF Global trustee held a meeting today (12/20/11) to provide information about the recovery of MF Global customer funds that were held for trading futures on foreign exchanges. Such funds are treated as being in a separate class than the funds held for trading futures on domestic exchanges under US bankruptcy law, and may or may not have their own shortfall apart from the apparent shortfall in domestic funds. The customers of the US MF Global broker had more than $800M of these offshore funds, and more than $600M of that amount was with the UK MF Global affiliate. Other significant amounts were with Canadian, Singapore and Hong Kong affiliates, all of which are in insolvency proceedings under local jurisdictions. The US MF Global trustee will file a single omnibus claim on behalf of all the customers of the US broker with such offshore funds, so its customers need not file claims with each affiliate. The trustee also continues to liaise with local representatives in each jurisdiction to advocate for recovery of US customer funds.
The good news is that there does not appear to be a shortfall in customer assets at the UK affiliate. However, roughly 90% of the US broker’s funds at the UK affiliate was held in T-bills that were hypothecated. This act of hypothecation seems to have undermined the segregated treatment of client assets under UK law, and as a result the US broker’s omnibus claim will largely be a general unsecured claim against the UK affiliate rather than a priority customer claim. It is unclear how significant other general claims may be, but if they are small compared to the customer claims and there is both no shortfall in customer assets and significant firm assets at the UK affiliate, it would appear that any impairment would be small. Nonetheless, there is a great deal of legal and factual uncertainty surrounding the recovery of these funds, and that recovery will require an extended period of time.
Neal R. Stevens
Of Counsel
Schuyler, Roche & Crisham, P.C.
nstevens@SRCattorneys.com
312 565.1045 tel (chi)
The Opinions expressed are the opinions of the author. The opinions, the trading styles, trading information and trading programs are not endorsed by the NIBA, but are the individual opinions, styles, information and programs of the author.
