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Guest Post: Are the Clients of MF Global Insured Against Fraud?
Submitted by FMX Connect
Are the Clients of MF Global Insured Against Fraud?
A question has been raised as to if the clients of MF Global are insured on their losses as a client of a bank or securities firm would be under FDIC or SIPC? The answer is maybe.
While there is no regulatory insurance agency to cover the losses of MF Global clients, the CME itself has a guarantee fund for losses. This fund is financed by the other Primary Clearing members. So all FCMs bear some burden of MF Global’s indiscretions. We believe it amounts to a $4BB Clearing Member “error Account”
The answer depends on legal questions and accounting details: For example, are the segregated funds of a Clearing member’s clients guaranteed if those funds were lost due to fraudulent actions by that clearing member? In other words, do the other Clearing Members at CME have to pony up the lost money if MF Global lost it fraudulently as opposed to though market events and poor in-house risk management. If MF Global is found to be in violation of some CME rules, fraud, delinquency or otherwise, we believe CME’s other Clearing Members will put their collective political collateral into finding a way to not pay the money lost.
In essence, is the Exchange a donut hole? Furthermore, do the Clearing Members who surround and thus define the CME decide if clients are made whole?
We’d expect an FDIC or SIPC type vehicle to be soon announced, as confidence in markets must be kept whole.
What we worry about is the CME Clearing Members Guarantee fund not being liable due to fraud, and the government having to step in once again as a final back stop.
Note: As of 9/30 MF Global was required to segregate $862,233,4333 on behalf of customers who are trading on designated contracts markets (DCMs) and derivatives transaction execution facilities (DTEFs) and an additional $551,777,871 for customers who trade on commodity exchanges located outside of the United States. It is our understanding that approximately 100 million dollar are missing from these funds.
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The Careless Whisper Nothing Euro Afternoon Update
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Press 1 For English:
http://www.youtube.com/watch?v=bJORGO1Q2VY
This MF Global business stinks; the fish rots from the head first -- and the aforementioned anterior end of this particular bearded fish is clearly in a state of advancing decomposition.
What type of idiot would trust their hard earned savings to anyone within a 50 mile radius of a Vampire Squid? They get what they deserve.
Not good if affects the Penson financials and such. THey support my PFG Beast, and trade king.
NOt sure who does my think or sink account. I got an email yesterday from someone. "come on in, the water's warm, and don't mind the sharks."
Shouldn't it be TDAmeritrade for TOS. TDA bought them about 2 years ago...
I'm sure they are insured against fraud. But the insurance event is not triggered by fraud by major democrat figures as that falls in the "force of nature" exception. The ISDA just issued a ruling to that effect.
... ISDA ??? Shuffle those letters for a better name; AIDS (acquired indenture deficiency syndrome)...
Love your playlists, CW! Very interesting for ANONYMOUS to agressively target ZETA.
This should be a good one. Here it is with English audio:
http://www.youtube.com/watch?v=bJORGO1Q2VY
They are calling now.
http://www.bloomberg.com/news/2011-11-01/mf-global-customers-call-sipc-seeking-money-after-broker-dealer-bankruptcy.html
play it safe, just rotate your unused cash from your brokerage account to your personal account.
Of course this would implode the market, since it's likely MF Global wasn't the only firm using client cash to increase leverage.
So if clients demand cash back -> deleveraging shock -> liquidity crisis -> do you know where your diapers are?
#occupywallstreet
And they have forever lost their trading privileges on the LME. Hope that CME is bullet proof.
The CME is filled with political whores who do the bidding of the Chicago Democrat machine.
What did ISDA do for Greek CDS? Yeah, that's what the CME will do.
ayup, percisely
It depends. The TBTF will get bailed out, but the indivdule/small invester groups will not.
Hate to be so cynical, but it's kinda like the "Not a credit event cuz voluntary" deal in Europe with 50% haircut. I'm sure the lawyers have fixed things such that fraud won't be paid out. Protect corporations and screw customers. Same old same old. Except Greeks taking things into own hands, and maybe we'll eventually do it here too. And the corporatocracy's power balance may discover it's on a new slant.
Yep, that's what the FDIC would do in case of nationwide bank failures too. (About 50cents on the dollar I suspect) We may see soon enough.
I belive the FDIC is down to 2 cents on the dollar, did you not get the update.
How many other firms are commingling funds? Should be interesting as the bank runs start.
Once they comingled, it became a crime- what happened after that- good or poor trading- doesn't matter. Determining the point of the comingling will keep the lawyers employed for years.
Solution? Comingle Corzine's net worth into this equation......
How many trillions of billions are insured? I wonder why we don't see it for what it is, the original ponzi. It is not even remotely possible to insure a fraction of what has been insured, and everyone knows that the money will be disappeared in a flash.
This is one of the fundamentals of capitalism that lacks a rational foundation. Insuring thieves.
it doesn't lack a rational foundation if you're the one selling insurance.
the FDIC, GSEs, Price-Anderson nuclear indemnities, EPA waivers, flood insurance & all other forms of government mandated insurance have nothing to do with capitalism.
The futures industry will be making a terrible mistake if MF clients are hung out to dry (I used to be one, but closed my account several years ago).
If this industry screws its customers, they will go elsewhere. Many of its products now have exchange-traded analogs (ETNs and such), which can be traded through stock brokers with SIPC insurance.
Better think long and hard about it, guys.
the CME may view Corzine's actions as okay.. but this may be the catalyst where the masses end up exacting justice.
Don't give a shit if I die poor, At this pace, we all will. To see some justice will at minimum, calm my soul.
Or claim self-defense.
When I was a kid my grandfather took me to a greasy spoon to get some chilli. It was purported to be the best Chilli in the fair sized southern town. Later the restaurant owner was arrested for using Kennel Ration in his Chilli. In those days KR was canned horse meat. The French would be pleased. I think a future best seller idea might be a cook book using nothing but pet food.
Obviously you haven't bought pet food recently. My wife keeps taking in strays and its killing me!
You'll do better with a cook book using weeds and grasses. At this rate thats all people will be able to get.
Ew...interesting idea though...except it does seem like pet food isn't any cheaper than people food nowadays...
What did the demographic of the retail MF customer look like?
Picture a demonstrative 60-year-old-something graphically bent over a davenport.
Of course fraud is insured. MF guys will get to keep the clients' cash.
minus a cut for their lawyers. All is well, move on.
The end result, the rumors about Corzine replacing Biden are probably dead now.
Wonder how many more Ponzi's will be uncovered before this year's out.
exactly! How many firms went chasing yield. I'm sure MF was not alone.
Fraud and asset destruction have been The Name Of The Game since 2008. The more destruction, the more ruse for pretense and Govt Bailout.
There is no intrinsic value to derivative contracts since they are not funded by either party and neither party performs a service, supplies a product, or delivers valuable consideration in any nature. There is a paper and a commission paid to whomever arranges the paperwork; but such is the nature of fraud, gotta have some seed-money, a "flash roll" to make pretense and exude confidence. Something like a Treasury Secy warning of "tanks in the street"...
Figure that "investing" remains viable and trustworthy? That markets are real and not completely manipulated? Then you have not yet tumbled onto the spike of Truth!
You and all you own are theirs.
Ownership of a thing conveys the right to destroy the thing.
Destruction of your things makes their things value increase; simple supply/demand mechanics at work.
Looting assures that our destruction will be total. If there is no capital or tooling, no raw material to work with there will be no rebuilding.
Of course, commodities are being pilloried again. Not like any investor would keep their hard-asset class positions when they could fire-sale them to keep their positions in the looter's targets.
There is a bank there however. And behind supposedly a government...or should I say "bailout."
MF Global, yes...huge story. But don't forget about GM, Tyler.
Today's numbers just described by the BlowHorn [CNBC] as "a touch of disappointment." Yeah, a 6% miss on sales.
This nation will not forgive GM for cronyism...for generations to come.
Could be. I just figure that if the gov't was calling the shots, their cars must be even shittier than Ford now.
I can tell you that there is nothing wrong with GM trucks. However, as soon as I sell this one, there will never be another. And I think America is with me.
Nope, never, ever.
All the short-changed customers will have to sue Corzine in a class action.
Good luck with that.
No. All paper is now suspect, always has been and will continue to decline to it's actual value of zero.
If there is any fraud insurance in america, that would be too expensive to many to purchase.
More fraud different day in the USA . Invest accordingly in regulated USA fraud and not Chinese fraud .
I am sure this was not a sign of things to come
http://uk.reuters.com/article/2009/12/17/cftc-mfglobal-idUKN171779712009...
SIPC does NOT cover futures and currency contracts.
http://www.sipc.org/how/covers.cfm
Yes, and no.
"Among the investments that are ineligible for SIPC protection are commodity futures contracts (unless defined as customer property under the Securities Investor Protection Act)"
Perhaps ISDA will proffer an opinion.
One way, or another, it's the public that will pay. Gar-Run-Teed.
AIG
What if Greece has exposure to MF? And Italy? And? Won't it just be the right thing to do, for Ben to to make them "whole?" Euro and the Union saved, problem solved. Right?
Clients took a voluntary haircut so no problem.
Yeah, customers are going to be taken care of with an "error account". The CME uses its "error account" as gigantic slush fund money. They browbeat members for cash continually, hoping to keep the status quo intact. It's been that way for decades.
Who gives a shit about customers? Place exists as it is only to facilitate the flow of cash through a legitimate [supposedly] institution into the hands of financial cronies and politicians. Throughout the decades, the CME has fought against every safeguard known to man to prevent the stealing of money from customer accounts.
The place is a whorehouse. So where were all the exchange safeguards to prevent this from happening? Where was the CFTC or the NFA? All these fucktards wee busy watching porn - got no time for customer money.
You would think after REFCO, this kind of shit would be reined in and dealt with properly. Not until they put asshats, like Corzine and his cronies like Turbo Tax Timmy, into a cell with Bubba for about 30 years.
I could almost deal with it if they actually punished people after the fact. But they don't even do that.
MF wasn't too big to fail; GE is!
About 20% of GE's commercial real estate holdings are in euro nations – about $16 billion in total exposure. And 50% of GE's consumer finance business (mortgages and credit cards) is euro-based. That's $71 billion in total exposure. Plus, you can add to that another $40 billion in European commercial loans and leases (mostly aircraft).
I asked my colleague Porter Stansberry – possibly the biggest GE bear you'll meet – to comment on the situation. He told me…
That's $127 billion in direct exposure to Europe. Assume a 20% haircut on these assets (based on bond prices), and you're looking at $25 billion in losses. That's a conservative estimate based on today's prices… but we expect the situation will get worse.
Due to $100 billion-plus of assets sales (including some of its best money-making properties, like NBC), GE now holds $44 billion in net tangible equity capital, which is enough to weather the storm in Europe – for now. However, I believe GE will continue to sell its trophy assets to cover these losses, which will greatly minimize the earnings power of the surviving company. And… if the crisis in Europe continues to get worse, there's no doubt GE's solvency is at risk.S&A Digest 10/31/11
But that's The Jack Welch Way, something we were told was the epitome of management excellence.
That big phoney took one of the most successful companies in US history, and one of the oldest surviving publicly traded companies, and turned it into a gambling casino. Then he bilked a golden retirement and travelled around giving speeches about what a great leader he was. What a tool.
No fraud since some assclown will state so..and the sheeple will bleat another bankster robbery against them.
If MF Global has trades at the CME that they can't deliver on, then the CME should be responsible for payout. In my reading, that is what they promise to their members to maintain the integrity of the exchange. I figured they would be paying out over silver before anything like this though.
Yes, but did we have an "event"?
Bankruptcy? nah, hardly an event.
You mean an "event?" Or an "event" "event?"
When is "is" is?
Get over it, it's not co-mingling, they were just doing sweeps.
I seen my chances, and I took 'em.
Al Capone
Multiply Al by how many here? This is an entire culture of theives. At least Al wasn't trying to pretend something else was true for him. I understand he even sponsored soup lines in the depression.
I can't wait to see the government step up and prosecute these thiefs.
http://video.cnbc.com/gallery/?video=3000051264
Fast forward to 05:22 through 06:33.Go get 'em TIMMAH!
/sarc
So... I wanted to see what is being reported to the herd, which naturally led me to CNBS. What's front and center? Why Dick Bove, of course, who spins it as a 'rogue trader' story operating in the shadows due to the lack of regulatory oversight. Then he goes in for the kill, and co-opts the OWS, giving them credit for seeing this problem and demanding a solution.
http://www.cnbc.com/id/45100447
Because as we all know, if only DC had even more power and money, everything would be better.
Some back of the napkin thoughts here: if MF leveraged the 700 million 40 times doesn't that mean MF owes someone 28 billion for the misappropriated moneys alone? How much of MF's own capital was also leveraged and whom is owed that money? Some lenders are going to take a huge hit. Corzine, being an insider in the club, probably thought nothing could go wrong with the bailouts, easy money since Tim and Ben were of the mindset that Europe will not fail. Too bad the black swan landed in his bath. Is it possible that Corzine was acting as Tim and Ben's dutch uncle, buying up and supporting Euro debt indirectly for the benefit of Tim and Ben?Just like the way the primary dealers have been supporting our own treasury debts? If Corzine's firm misappropriated client money and he is not prosecuted the answer will be clear.
That would be my guess. Pity the plebs didn't play along. Also, if that's the case, I expect to see Corzine drag out the ole Goldman line "MF Global is not accountable. We were acting as an agent of the Federal Reserve/US Treasury." Using client's money for margin calls though is gonna make that a hard sell.
The tell will be watching Timmah and Benron. Will they provide cover, or cry out for more power in order to save us all? Or both?
Does this mean, finally, that SOMEONE will go to jail...?
Just die JPM!
The accounts held by the futures arm of MF do not have any kind of regulatory insurance fund. The futures exchanges hold margin for the positions on the books and mark the daily variance to market, requiring additional funds or releasing any excess. The exchanges' 'insurance fund' is essentially a shared liability against a clearinghouse default on a payable. SIPC insures U.S. domestic securities accounts to a max of $500k (includes up to $100k in cash). And as you know, FDIC insures bank accounts. If MF had a regulated banking sub (which I doubt but don't know), so-called sweep funds could be held in the bank and would then be subject to FDIC insurance.
As an ex-broker of a firm owned by MF, I can tell you that client funds are not guaranteed. I personally feilded that question a quite a few times. Yes, the funds were supposed to be held in a segregated account, but it is my understanding that the segregated account is not backed by any FDIC of SIPC guarantees.
MF Global Explained:
http://www.youtube.com/watch?v=jLt05sN7vK0