Interactive Brokers' Peterffy Warns On MF Global Customer Transfers
November 03 2011 - 5:04PM
Dow Jones News
Former customers of MF Global Holdings Ltd. (MFGLQ) and the
firms that on Thursday agreed to take on their business face a
potentially messy process, according to the chief executive of
Interactive Brokers Group (IBKR), which nearly bought the
struggling broker-dealer earlier this week.
Interactive Brokers "reluctantly" declined to join in a plan
developed by CME Group Inc. (CME) to divide up MF Global's customer
base and move them over to other firms, due to potential market
exposure and legal risks that could come along with the business,
Peterffy said.
"MF Global put the exchanges and regulators in a very tough
position," Peterffy said in an email.
Regulators and exchanges had held out hope Sunday that MF Global
and its bankers could negotiate a last-ditch sale of the troubled
firm to Interactive Brokers, which operates in similar markets but
has a different clientele. Interactive Brokers early Monday broke
off those discussions after a discrepancy arose in the amount of
customer assets held by MF Global, assets that are required by law
to remain separate from a clearing firm's own funds.
The Commodity Futures Trading Commission on Wednesday figured
the shortfall at $633 million. MF Global has declined comment this
week.
The transfer project was put together in an effort to free up
clients that had trades and collateral stuck with the collapsed
firm since Monday.
"Interactive Brokers was interested in purchasing MF Global
before the issues arose that have been reported in the media, but
we reluctantly decided not to participate in this transfer of the
customer accounts from the futures exchanges," Peterffy said in an
email.
The main issue is that customer positions will be transferred
with "minimum margin" to cover outstanding trades, and without an
extra cash buffer, market movements could soon render the trades
without enough collateral to cover the exposure. That would put the
clearing firm accepting the customer account at "potentially large
risk," Peterffy said.
The group of about 10 firms that have agreed to receive MF
Global customers Thursday will either have to immediately ask their
new clients for more money to cover the trades -- if these
investors can be reached -- or else liquidate the accounts, unless
the firms choose to take on the risk themselves, according to
Peterffy.
"These brokers thus potentially face big market risks,
litigation risk, confusion, complaints and unhappy customers," he
said.
A better solution would have been to liquidate all MF Global
customers' positions to cash on Monday, following the bankruptcy
filing, Peterffy said, though this would have "created its own
problems."
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
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