UPDATE: ICE Seeks Ruling To Unlock Customer Cash At MF Global

IntercontinentalExchange Inc. (ICE) sought a bankruptcy court ruling Thursday to "immediately" free up customer cash held on deposit with MF Global Holdings Ltd. (MF), after some funds began to be returned to other clients of the collapsed broker-dealer this week.

ICE warned that the still-unfolding process of reuniting MF Global's derivatives-trading clients with the funds used to back up their bets has favored some customers over others, and said that the court's decision on the matter would set a legal precedent.

"We believe this result is inequitable and within the power of the court to redress," wrote Thomas Hammond, president of ICE's U.S. clearinghouse, and Thomas Farley, president of ICE's U.S. futures markets, in the letter.

ICE joined with other exchanges and clearing facilities last week to arrange a mass exit from MF Global for brokers, hedge funds and individual investors who had trades open at the time the New York firm slipped into bankruptcy on Oct. 31. Those clients were placed with a group of healthy clearing firms, and a "hold" on margin posted against trades began to be lifted Wednesday morning, according to a notice from CME Group Inc. (CME).

Customers of MF Global who took trades off the table ahead of the mass transfer or had only cash in their accounts remain separated from their funds, however. The trustee supervising the company's liquidation is expected to require clients to file claims to retrieve these assets.

ICE asked Judge Martin Glenn of the U.S. Bankruptcy Court in New York, which is handling the MF Global matter, to permit a "portion" of the cash to be released from the MF Global trading accounts. Clients who had trades on saw the positions moved last week with about 60% of overall margin posted up against the trades.

Those customers who closed out their trades following MF Global's bankruptcy filing or preemptively moved their business to rival firms without the collateral held at MF Global have been disadvantaged by the way the process has played out so far, ICE said.

"Thus, the bulk transfer order created an inadvertent preference in favor of those customers who did nothing in response to MF Global's financial condition, and operated against those customers who acted quickly and responsibly to reduce their exposure to MF Global and thereby the exposure of the various clearing organizations of which MF Global was a clearing member," ICE's executives wrote the court.

Should the judge not rectify the issue, ICE warned that the inaction could lay out a legal precedent for future clearing-firm failures and encourage clients to keep their trades on in hopes of getting earlier access to funds--a scenario that would leave clearinghouses and other traders exposed to greater risk.

"This could potentially have grave systemic implications," wrote the ICE officials.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

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