Futures Firms Weigh New Client Practices After MF Global Revealed Snags

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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