Ex-MF Global Customers Fear Margin Calls After Account Transfers

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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