--The $130 million doesn't alter estimate of $1.6 billion in
missing customer funds
--CME claims will have lower priority than those of former MF
Global customers
--Agreement is subject to bankruptcy judge's approval
(Update adds CME comment, information from hearing, and further
background.)
By Jacob Bunge and Joseph Checkler
The trustee unwinding the brokerage of MF Global Holdings Ltd.
(MFGLQ) struck a deal with CME Group Inc. (CME) that will see the
futures exchange operator turn over about $130 million in property
that will go to former customers of the collapsed firm.
The figure will be split between U.S.-based and overseas
accounts, according to a Thursday notice from trustee James
Giddens. An additional $16.5 million in property will continue to
be held by CME to cover any claims against the exchange group, and
$28.5 million more will go to the judge overseeing the case to be
allocated later, according to a spokesman for Mr. Giddens.
Thursday's agreement does not yet alter Mr. Giddens's estimate
of $1.6 billion in customer funds held by MF Global that have yet
to be returned to customers. That figure depends on total claims
and recovery efforts, according to the trustee's spokesman. Under
terms of the agreement struck Thursday, CME's own claims will have
a lower priority of payment than MF Global's former customers'.
"This agreement supports my goal to expeditiously resolve
outstanding conflicts with parties as we work to recover and
distribute as much customer property as possible as quickly as
possible, in a manner that is fair and consistent with the law,"
Mr. Giddens said in a statement Thursday.
MF Global's rapid implosion in late October left holes in the
accounts of the fund managers, farmers and traders that depended on
the firm to do business in financial markets. CME, which drew
criticism from MF Global clients over its early handling of the
firm's failure, offered a financial guarantee that enabled Giddens
to free up the majority of customer cash and other property held by
MF Global when it failed.
"Such an agreement avoids the delay, risk and expense that would
arise from any dispute to resolve the interpretation of exchange
rules going forward," said CME spokeswoman Laurie Bischel.
"Therefore it helps us get as much money to customers as quickly as
we can."
The agreement came up at a court hearing Thursday, although
Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan was more
concerned with venting his frustration at the snail-like pace of a
customer-asset fight in the U.K. between Giddens and the company's
U.K. administrator.
A U.K. court has scheduled an April 2013 trial on the matter,
with both sides fighting over who has claims on the $700 million in
customer assets, which represents nearly half of the $1.6 billion
allegedly missing from "segregated" accounts.
Judge Glenn said that it was "eye-popping to me when I heard
that it isn't until April 2013." He added, "I can assure you if
there was a trial here it wouldn't be in April 2013." The judge
said he would communicate with the U.K. court if necessary.
Thursday marked the first hearing in the case since Mr. Giddens
and Louis J. Freeh, the trustee overseeing MF Global's estate,
issued lengthy reports on the status of MF Global's bankruptcy and
the brokerage's liquidation.
Giddens is winding down MF Global's broker-dealer business under
the authority of the Securities Investor Protection Act, which
governs the liquidation of failed brokerage firms. The liquidation
is separate from the bankruptcy case of MF Global Holdings, the
parent company, which filed for Chapter 11 protection last fall.
That estate is now being overseen by Freeh, a former director of
the Federal Bureau of Investigation.
Giddens has recovered about $5.3 billion of the $5.5 billion to
$6 billion in U.S. customers' segregated funds held at the
brokerage and has returned more than $4 billion to customers via a
series of bulk transfers arranged by CME in the weeks following MF
Global's demise last year.
-Write to Jacob Bunge at jacob.bunge@dowjones.com