NEW YORK (Dow Jones)--Some former customers of MF Global Inc.
(MFGLQ) rushed 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.
Friday, CME Group Inc. (CME) transferred about $1.45 billion in
15,000 customer accounts from MF Global's U.S. brokerage--roughly
30% 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 began contacting clients about the 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 active account, which is required to resume
trading. Others who gained access 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, known 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 confusion still reigns over much of the market and traders
are unsure whether their new clearing firms will require them to
post additional margins on their trades.
Most believe the situation will be settled over the next few
days. Meanwhile, no reports have surfaced that clearing firms have
set deadlines for increasing margins.
The bankruptcy trustee did not release enough of the funds to
back all the open positions moved from MF Global accounts. The
percentage of the margin backing those transferred positions has
varied from one account to another, former customers say. As such,
some clients may need to post additional funds simply to start
trading with a new firm.
Anthony Beryl was one of the traders rushing to add additional
funds to back market bets Friday out of fear of a margin call. The
president of Beryl Investment Group in Palm Beach Gardens, Fla.,
had his MF Global account frozen Monday when the brokerage declared
bankruptcy and had not been able to trade since.
Beryl said less than 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 ensures that there is enough cash cushion in each
account to cover margin requirements on all trades. But when the
first batch of his accounts began moving, 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. Beryl liquidated certain profitable
positions to raise cash to forstall a possible margin call.
"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 is liquidating the positions to avoid what he views as a
worse scenario: having to approach his investors and ask them for
additional cash.
A spokesman for the trustee overseeing the transfer of accounts
said not all of the margin could be moved. He said some of the
customers' cash is being held back because of a possible shortfall
in MF Global's accounts.
Officials at 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. Initially, he feared
R.J. O'Brien would cash out those positions because of insufficient
margin.
"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.
Meanwhile, Beryl said he is confident that all of the account
holders with MF Global will be made whole eventually. For now, he
feels the situation has been handled poorly, and remains in the
dark about when the remainder of his cash with MF Global will be
transferred.
"The trustee. The [bankruptcy] 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."
The impact of MF Global's demise on the market also can be
measured in the muted trading volumes, reflecting that some traders
still can't trade and others may be cautious after the brokerage's
demise. Friday, oil trading volume was about 30% below the 200-day
moving average; trading volume in gold was down 25% and volume in
copper was down 11% from its 200-day moving average.
-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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