Many of our NIBA members have been hard hit by the MF Global debacle. Understandably, emotions are raw, frustration is high and there is widespread financial hardship. While clearly there are no instant solutions to this mess, we write to let you know what NIBA has been doing on your behalf, and what you can do.
The road ahead is a potentially long, but at this juncture the immediate need is the release by the bankruptcy trustee of additional segregated funds owned by clients to not only maintain existing trading positions, but necessary for trading at all. Although the CME has added some $300 million funds, the release of all customer assets is vital to an efficient marketplace.
In addition, there is the important issue of when and how, our broker membership might recover the commission revenue rightfully earned. It seems these two huge issues are out of your control at this moment, and apparently, they are out of the control of even exchanges and FCMs themselves.
The NIBA has not been on the sidelines. Melinda Schramm, Chairman of the NIBA, along with all the other directors, have received overwhelming numbers of phone calls and emails from members. We have tried to keep up with each member’s concerns, while keeping the entire association’s well being in mind. This week we held an emergency meeting to address the issue of why the trustee won’t return additional amounts of segregated funds available to the extent they are not necessary to preserve the legal goals of the bankruptcy proceeding. Such an action would at least permit account holders to begin the process of resuming business.
We have also been proactive this week. We have reached out to other membership organizations including CME, ICE, FIA, MFA and NFA, in an effort to form a coalition voice that, in a unified fashion, could make clear the very precarious position of the broker community. NIBA’s efforts to forge a coalition with larger and better subsidized organizations is one way to get our issues heard. This process is continuing as this article is written.
In short – NIBA wants you to know that you are not invisible in this process. NIBA is not invisible. NIBA’s purpose is to provide information and education to our members. It is the forum by which individual’s concerns can be heard as part of a larger community. We understand the flow of accurate, timely information is very important at all times, and particularly now. We are working for you and will keep you apprised of our efforts in your behalf.
What is in your control? What can you do right now to preserve your business?
First, and foremost, remain in contact with your clients, wherever they have been transferred. You may inform them that your membership organization is fighting vigorously for the return of their capital, and to free them to do business with the brokerage of their choice. Stay in contact. Work the relationships – they need to hear your voice. Don’t let them feel abandoned. Just as you are suffering hardships, your clients are confused and wondering what is next for them.
Additionally, here are some practical topics to be aware of as the structure to preserve your business.
IBs who either cleared or were guaranteed by MF Global will need to enter into new clearing or guarantee agreements with their new FCMs, as appropriate. These agreements set forth the basic responsibilities of the FCM and IB, including but not limited to, representations that the IB and FCM will conduct their business in accordance with applicable laws and regulations, provisions relating to the payment of commissions, access to electronic order entry platforms and account opening procedures. In reviewing a clearing or guarantee agreement IBs should also be aware of the following provisions or issues which may impact their business.
- A provision should be included giving the IB the right to bulk transfer its customer accounts to any FCM in the event that the IB decides to clear its accounts with or have its accounts guaranteed by another FCM, as appropriate.
- IBs should ensure that there are no restrictive covenants limiting the ability of the IB to continue to solicit and service clients if the IB were to leave and transfer its customer accounts to another clearing firm.
- Many agreements contain provisions stating that an IB is responsible for the collection and payment of all money due to the FCM from IB customers, including any debits or deficits occurring in customer accounts. Although it is difficult to have such a provision removed, an attempt should be made to either have the provision omitted from the agreement, or attempt to limit the responsibility of the IB for customer debits.
The above are only three important provisions to look for – it is recommended that an IB consult with an attorney before entering into any agreement.
As a necessary disclaimer, please note that the information in this notice is taken from sources believed to be reliable, is general in nature and should not be construed as legal advice with regards to any matter associated with the MF Global liquidation. Readers should consult an attorney directly for any advice relating to this matter.
Steven P. Pherson
Attorney at Law
SPherson@SRCattorneys.com
312.565.8373 tel / 312.565.8300 fax
Schuyler, Roche & Crisham, PC
One Prudential Plaza, Suite 3800
130 E. Randolph Street
Chicago, IL 60601
www.SRCattorneys.com
