Some former customers of MF Global Inc. (MFGLQ) scrambled Friday
to sort through newly unfrozen funds--and awaited word on whether
they will have to put up additional capital to back their market
bets.
On Friday, CME Group Inc. (CME) transferred more than $410
million in 5,300 accounts from MF Global's U.S. brokerage, roughly
10% of the 50,000 accounts to be moved, to new clearing firms. A
group of 10 clearing firms received the bulk transfers throughout
the day Friday and have begun contacting clients about the new
accounts.
For many of those new clients, the process was a nerve-wracking
experience. Some said they were still unsure of when they would
gain access to an account, which is required to resume trading.
Others that regained control rushed to sell some positions in order
to meet what they expect will be margin calls due to bets that have
turned against them over the past week.
For all open bets in the commodities markets, traders need to
put up cash to back the position, know as posting margin. In order
to keep holding those bets if the contract falls in value, traders
are required to post additional cash with their clearing firm.
But given the confusion over which accounts were moved and what
margin the new clearing firm might demand, most believe the
situation will be settled sometime over the next few days.
Anthony Beryl was one of the traders rushing to add additional
funds to back market bets Friday. The president of Beryl Investment
Group in Palm Beach Gardens, Fla., said just under half of his 45
frozen MF Global accounts have been transferred to a new clearing
firm, ADM Investor Services, a unit of Archer Daniels Midland Inc.
(ADM).
Normally, he said he ensures that there is enough of a cash
cushion in each account to cover margin requirements on all trades.
But when the first batch of his accounts began moving, he said he
found out that only a "very minimum margin" went with them.
Beryl, who has about $7 million under management, suffered
because of the small amount of margin being transferred and being
locked out from trading since MF Global declared bankruptcy Monday.
Beryl liquidated certain profitable positions to raise cash against
possible fluctuations in the future.
"I've had to liquidate positions that I normally would have kept
intact," he said. "I would not have liquidated them otherwise if
enough margins had shifted over with their original positions."
He said he is liquidating the positions to avoid what he views
as a worse scenario: Having to approach his investors and ask them
for additional cash.
One issue facing clearing firms and their new clients is that
the trustee overseeing the transfer of the accounts hasn't released
enough of the funds to back all open positions moved from MF
Global. The percentage of the margin backing those positions has
varied from one account to another, former customers said. As such,
some clients may need to post additional funds simply to start
trading with a new firm.
A spokesman for the trustee overseeing the transfer of the
accounts said some of the customers' cash is being held back
because of a possible shortfall in MF Global's accounts.
Officials at the CME and the Commodity Futures Trading
Commission estimated that $600 million in customer money is missing
from the failed brokerage.
Marc Nagel, chief operating officer of Dorman Trading LLC, one
of the firms receiving client accounts, said the funds he began
receiving early Friday morning were "only a fraction" of the
required collateral needed to back up the open positions.
"We're going to do a fine analysis to find out who's under and
who's over," Nagel said.
To maintain any open positions, Nagel said new clients will have
to bring their accounts up to the firm's standards for posting
collateral backing those trades.
"As far as we were concerned, they were new customers. We know
you have to get back to work. Fill out our paperwork, and give us
some money," Nagel said.
Sean McGillivray, a vice president at Great Pacific Wealth
Management, was embroiled in a similar process with his $5.5
million in MF Global accounts.
His clients' positions were sent to R.J. O'Brien and were
received by the clearing firm midday Friday.
"Last night it sounded like we were going to get liquidated
today, but now it sounds like we have some time," he said. After
talking with R.J. O'Brien, he learned that the clearing firm would
be sorting through the bulk transfer over the weekend and he would
likely learn more Monday.
"From what we're being told, we're not going to be able to
offset positions for at least a day," McGillivray said.
Beryl said he is confident that all of the account holders with
MF Global will be made whole eventually. For now, he said he feels
the situation has been handled poorly, and he remains in the dark
about when the remainder of his cash with MF Global will be
transferred.
"The trustee, the judge ,I don't think they're really getting
their arms around this whole situation," he said. "It's continually
changing and no one really knows what the real story is."
--By Jerry A. DiColo and Dan Strumpf, Dow Jones Newswires;
212-416-2155, jerry.dicolo@dowjones.com
--Leslie Josephs contributed to this article.
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