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MF Global White Paper - Background, Impacts & Solutions - by the Commodity Customer Coalition

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COMMODITY CUSTOMER COALITION

WHITE PAPER:

Background, Impacts & Solutions to MF Global's Demise

By John L. Roe & James L. Koutoulas, Esq.

 

Purpose:

This white paper is intended to offer a plain language understanding of the backgrounds and impacts of the MF Global bankruptcy for non-financial professionals. It was originally published November 10, 2011 and was last updated December 1, 2011.

Summary:

The failure of MF Global has wide ranging consequences for the American economy. Its bankruptcy is being handled in a manner that is making these consequences many magnitudes worse than necessary. The freezing of customer segregated funds is having a chilling effect on global financial markets and also has a less obvious but significant impact on the day-to-day operations of farmers, mining operators, ranchers, and other commodity consumers and producers, as well as the portfolios of pension funds and retirees alike. The failure of MF Global directly contributed to the loss of more than 2,800 jobs and the unnecessarily slow speed of this bankruptcy process will cause the loss of even more jobs. 

Beyond the obvious peril this poses to the fragile US economic recovery, the long-term implications of the bankruptcy and its fallout may spell the end of the United States as a viable jurisdiction for commodity trading. If commodity customers can no longer trust that funds they tender to brokers in the US will be held segregated and in fact may be tied up for months and years in a bankruptcy, commodity producers and consumers will seek alternative means to hedge their exposure to commodity prices. This will include seeking alternative trading jurisdictions (perhaps in Asia and Europe) and an increased use of over-the counter derivatives, increasing counterparty credit risk. The end result will be that commodity hedgers will find it more expensive and difficult to hedge their price risk and eventually it will yield inflation in end-user prices for consumer goods and services. Congress has several options to mitigate these consequences.

About the Authors:

This white paper was co-authored by the founders of the Commodity Customer Coalition ("CCC"), John L. Roe and James Koutoulas, Esq. They formed the CCC in the days immediately following the October 31st bankruptcy filing of MF Global after it became clear that every entity which purported to protect and advocate for commodity customers failed to do so. The group represents more than 7,000 commodity customer accounts of MF Global and maintains a strong presence in the bankruptcy court and media on behalf of its membership. For more information on the CCC, please reference our media kit or visit our website (http://goo.gl/dmswn).

Mr. Roe is a partner with BTR Trading Group, a guaranteed introducing broker with almost 1,000 customer accounts at MF Global. He also heads the commodity trading advisory firm Roe Capital Management. Mr. Koutoulas is an attorney and the CEO of commodity trading advisory firm Typhon Capital Management, which has more than $55 million dollars of its customers' assets frozen at MF Global.

www.CommodityCustomerCoalition.org | jroe@btrtrading.com or jk@typhoncap.com | 312-933-6564

Full white paper may be found here.

 

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Sat, 12/03/2011 - 12:30 | 1941508 SirPlayomic
SirPlayomic's picture

"Freezing of segregated funds" - you can't "freeze" funds that are not there. They gambled customers money on European sovereigns, thinking that the creation of Eurobonds was only a few days or weeks away. Now it's a couple of months later, everyone is being told to hate Germany for its refusal to allow the creation of hyper-inflation triggering Eurobonds and many have lost big time and want JC dead. But instead of being hung, drawn and quartered, he'll be USA's next treasury secretary :/

They are getting bolder and bolder by the week.

www.greedion.com

Sat, 12/03/2011 - 09:34 | 1941291 Gold Dog
Gold Dog's picture

I have an account clearing through Penson. Does anyone have an opinion on their viability?

It is through TDAmeritrade that sweeps all non-needed margin back into my stock account after I close out a trade.

Thanks in advance for your insights.

 

Dog

Sat, 12/03/2011 - 10:30 | 1941355 TheMerryPrankster
TheMerryPrankster's picture

It looks like the CME group is out to lunch, either incomptent or no longer regulating. Check out this from Reuters:

(Reuters) - Regulators investigating the collapse of MF Global have determined that the firm combined money between securities and futures accounts owned by customers, and transferred funds outside the country to at least one entity, a source said on Friday.

 

"The further we get into (the investigation) the more complex it is ... but we're making progress," the source said, adding that the commingling and transferring of money is making it harder for regulators to determine what money belongs where.

MF Global took futures segregated money and put it into the account for customer securities, essentially mixing futures and securities that were both owned by customers, said an official familiar with the matter.

Until now, it was believed that only customer futures accounts were affected.

The source also told Reuters that MF Global had been using customer funds for "several days if not weeks" rather than just a few days before the firm collapsed.

Regulators had previously thought the firm was using customer funds on the Thursday and Friday before it filed for bankruptcy on October 31.

CME Group, the Chicago exchange where MF Global traded, said it had reviewed the company's books a week before the bankruptcy and found no issues with the customer money.

 

http://www.reuters.com/article/2011/12/03/us-mfglobal-funds-idUSTRE7B203...

Sat, 12/03/2011 - 06:30 | 1941210 disabledvet
disabledvet's picture

what matters most is that the activities of MF Global are "ongoing." This trading operation has not been shut down. If Europe collapses then these still active "non-callable" margin calls could balloon beyond the reach of what authorities think they are dealing with. They need to send in Sheila Baird immediately into this swamp and have her start draining it. the authority for such an act seems possilbe given the appearance of illegality of the JPMorgan Banking Corporations receiving of 200 million of the ill gotten money in their London Branch and the "need to get to the bottom of this immediately." At least that's according to Jamie Dimon.

Sat, 12/03/2011 - 02:42 | 1941071 Coldfire
Coldfire's picture

The money is gone. Just hang this thief, already. No jury in the land would convict.

Sat, 12/03/2011 - 10:26 | 1941351 Manthong
Manthong's picture

Doesn't matter.. the presidentail pardon paperwork is already done and in Corzine's personal safe.

Sat, 12/03/2011 - 11:38 | 1941438 obelisks
Sat, 12/03/2011 - 02:09 | 1941037 Mr. Lucky
Mr. Lucky's picture

Too bad nobody will stop the next comingler until it is too late.

Sat, 12/03/2011 - 00:52 | 1940921 WVO Biker
WVO Biker's picture

So if there were accounts transfered after say 2/3 of equity was stolen, then account holders should not expect SIPC protection will kick in?

Sat, 12/03/2011 - 00:31 | 1940887 navy62802
navy62802's picture

MF Global impact. Well, if MF Global were investigated fully, I do believe that the case would bring down many others. What we face is an institutional crisis. Our investing instutions have essentially established themselves as multiple ponzi schemes. And MF Global's structure is nothing more than a mirror for that institutional ponzi. Only the authorities hold the key to our future. They can choose to either pursue rampant illegal trading or not. I suspect they will not. There are too many powerful and influential traders who want the opposite. This all will end. The question is when. Operations like MF Global can only exist as long as people buy the bullshit. When that ends, the system crashes. For the sake of the USA, I hope that we have an intervention. However, the pragmatist in me realizes that this won't happen. And the only prudent course of action is to prepare. Food, weapons, gold/silver, medical supplies and shelter. These are the things which will save you in the coming collapse. Not money or stocks or faith in your government.

Fri, 12/02/2011 - 17:36 | 1940007 4shzl
4shzl's picture

If you keep money or securities in any kind of brokerage account, you are a fool.  There are no guarantees, and there is no insurance.  I love this quote from the president of SIPC as reported in the New York Times article exceprted below.  Note his use of the word "reluctantly" -- here's what it means: we're here to collect premiums, sweetheart, not pay claims.  The only way we pay claims is if we're backed into a corner and can't find any other way out.

SIPC offers protection up to $500,000 for securities accounts, but it covers only $250,000 in cash, said Stephen Harbeck, president and chief executive.

Those who had money in MF Global’s securities accounts have not gotten it back. There are 400 securities accounts on top of the 38,000 commodities accounts. But after a month, they are still in limbo. “The trustee is still working on that,” Mr. Harbeck said. “We hope to get them to another broker.”

But there is no deadline for this, and account holders should not expect to collect money from SIPC any time soon. “If there is no viable account transfer, we’d reluctantly have to satisfy claims,” Mr. Harbeck said. “The protection would kick in at that time.”

http://www.nytimes.com/2011/11/26/your-money/in-commodities-world-safe-a...

Fri, 12/02/2011 - 18:36 | 1940198 Bastiat
Bastiat's picture

A friend with money at MF got this:  two checks, which bounced.  Now his account balance shows as zero. 

Sat, 12/03/2011 - 11:43 | 1941447 obelisks
obelisks's picture

according to this interview your friend may have to brace for clawback on top of his losses. I don't think it is over for your friend yet unfortunately

 

 

 

http://www.financialsense.com/contributors/2011/12/02/ann-barnhardt/inte...

Fri, 12/02/2011 - 16:47 | 1939810 BW
BW's picture

There is never just one.

Fri, 12/02/2011 - 16:45 | 1939809 PulauHantu29
PulauHantu29's picture

Is this why I read most people want to own physical stuff in their own hands rather then trust some broker?

If commodity customers can no longer trust that funds they tender to brokers in the US will be held segregated and in fact may be tied up for months and years in a bankruptcy, commodity producers and consumers will seek alternative means to hedge their exposure to commodity prices.

What you write seems to make sense. I note Univeristy of Texas took physical possession of all the gold they bought.

Fri, 12/02/2011 - 16:22 | 1939721 High Plains Drifter
High Plains Drifter's picture

oh so the deal with interactive brokers fell through. gee, i wonder why?   

Fri, 12/02/2011 - 15:53 | 1939590 besnook
besnook's picture

the failure of mf(gotta love the acronym) is significant if the system was operating under the rule of law. because the system runs under the law of rulers, who cares? whattaya gonna do? invest dollars in euros? until china(and even india) really opens up you are stuck with the criminals you know

Sat, 12/03/2011 - 06:24 | 1941208 disabledvet
disabledvet's picture

not that simple. this article implies a problem with the exchange itself--that would be trillions of dollars of trades throughout all asset classes and future markets. the inability to clear trades throughout the entire exchange was a significant factor in creating the Great Depression and the reforms that followed--especially the creation of the FDIC since we had 40,000 bank failures in the GD. This time around we have "state failures." since most debt markets "trade in the future" this lackadaiscical and desultory "corruption" approach to this obvious attack on the basic structure of an actual market-- for lack of a better word-- could result in say "the State of New Jersey collapsing" since we are talking trillions in the futures markets for debt. not true in the equity space of course. that one is the options exchange and they're a devil to trade in and not lose everything everytime you do!

Fri, 12/02/2011 - 14:59 | 1939430 apberusdisvet
apberusdisvet's picture

A planned theft to fund Obama's campaign with the vig going to JPM.  It's that simple.  The money will never be found; laundered through the banking system.

Corzine will have a fatal heart attack; the autopsy will be perfunctory.

Sat, 12/03/2011 - 06:26 | 1941209 disabledvet
disabledvet's picture

perhaps while he is testifying before the Senate...and "just as he is about to answer that very important question."

Fri, 12/02/2011 - 14:57 | 1939425 tony bonn
tony bonn's picture

for fuck's sake, if you didn't see the legal corruption on this after seeing chrysler, gm, aig, bear stearns, and a host of other companies targeted for destruction, then you should jump from a tall building without means of support or change professions....

ever since the murder of jfk was covered up by the cia, fbi, and executive branch, truth and integrity have been scarce....

even more blatant is the totus' citizenship...rather than reporting it as indonesian - the truth, everyone reports lies based upon his falsified birth certificate....

ye shall know the truth and the truth shall set you free...

www.obamacrimes.com

 

Fri, 12/02/2011 - 15:17 | 1939405 WVO Biker
WVO Biker's picture

After having been burnt by MF I already sent papers to open a new account with a London broker. I would also trust a St. Petersburg broker. 

Sat, 12/03/2011 - 02:18 | 1939908 equity_momo
equity_momo's picture

Eh?

Fri, 12/02/2011 - 14:41 | 1939384 puck
puck's picture

What a bunch of cahca! just eat yer peas he says........

SEND them all PINK SLIPS NOW... DO IT! NOW!

Sat, 12/03/2011 - 00:11 | 1940841 covert
covert's picture

promotion will temporarily substitute for honesty, then cold future.

http://expose2.wordpress.com

 

Fri, 12/02/2011 - 15:44 | 1939566 Manthong
Manthong's picture

"Solutions to MF Global's Demise"

Cannot be accomplished without a lot of rope.

Fri, 12/02/2011 - 17:15 | 1939936 buyingsterling
buyingsterling's picture

ON AN IMPORTANT AND RELATED NOTE:

The 'Republican Jewish Coalition' has declined to invite Ron Paul to their nationally televised debate on Dec. 7th. Apparently, Paul is 'misguided' and'extreme'. More here: http://www.infowars.com/republican-jewish-coalition-bars-ron-paul-from-d...

 

You can email the RJC here: rjc@rjchq.org

And you can reach their ladies' group here: Women@RJCHQ.org

Do NOT follow this link or you will be banned from the site!