Futures Firms Weigh New Client Practices After MF Global Revealed Snags
March 06 2012 - 4:19PM
Dow Jones News
U.S. futures exchanges and brokerages are discussing ways to
ease customers' migration from one broker to another after the
demise of MF Global Holdings Ltd. (MFGLQ) revealed snags in the
process.
The futures industry's main trade body has formed a group to
examine standards for transferring the business of farmers, hedge
funds and other clients, should the industry again need to organize
a mass exodus of customers from a collapsed firm.
"Certainly [handling MF Global] would have been much easier if
there was a standard format," said Diane McFadden, director of
Chicago operations for futures-exchange operator
IntercontinentalExchange Inc. (ICE), speaking at a Futures Industry
Association event Tuesday.
More than four months after MF Global's implosion and with an
estimated $1.6 billion still out of reach for authorities managing
the firm's liquidation, the futures industry continues to weigh new
safeguards for customers and tightened practices for managing the
failure of a major player like MF Global.
After the New York firm slid into bankruptcy early Oct. 31, the
U.S. futures industry confronted the task of shifting about 38,000
of the failed company's customer accounts to other firms, alongside
active trading positions and cash held on deposit with MF
Global.
Chicago's CME Group Inc. (CME) led an effort among U.S.
exchanges and clearinghouses to find landing pads for MF Global
customers at a roster of rival brokerages. It took a little over a
week for trading positions to move, and longer for cash and other
assets held at the firm, some of which has yet to be returned to
clients.
The process of moving the accounts was complicated because there
had been no industry-standard practice for transferring open
trades, or even basic customer information like names and phone
numbers and commission terms, according to Matthew Rees, chief
customer officer for R.J. O'Brien & Associates, one of the
Chicago futures firms that took on business from MF Global.
"I think most people [have] now agreed that a common standard
format would be beneficial," Rees said at the FIA event
Tuesday.
A shift to a more streamlined transfer process is among a host
of moves being weighed for futures trading as the industry seeks to
rebuild confidence among customers, which include food producers
hedging price risks and asset managers speculating on shifting
interest rates and currencies.
An insurance-like protection plan for futures-brokerage
customers and the prospect of keeping their funds in a new,
centralized facility not under brokers' control also are under
discussion. In addition, firmer rules for brokers, including
requiring top executives to sign off on big transfers of client
funds, are being considered.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
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