A probe launched by the Commodity Futures Trading Commission
(CFTC) in the wake of lost segregated monies at MF Global has found no material
breach of customer funds protection requirements at other futures brokers.
Initiated after the October collapse of MF Global, the CFTC
investigation was coordinated with Chicago-based derivatives exchange CME Group
and the National Futures Association (NFA).
The CFTC review assessed the compliance of FCMs with
requirements to segregate customer funds and their obligation to set aside in
secured accounts funds deposited by customers for trading on foreign boards of
Of 120 FCMs registered with the commission, the CFTC found
70 held segregated funds or secured amount funds and the remaining 50 did not
carry customer segregated or secured funds.
During the review period, FCMs held a total of approximately
US$166 billion in segregated accounts, which was approximately US$13 billion
(or 9%) in excess of the $153 billion owed to customers.
The commission found some US$137 billion of the total
segregated funds (82.5%) and US$42 billion of the total secured funds (87.5%)
was concentrated with 14 FCMs.
FCMs posted approximately US$74 billion of segregated funds
with commission-designated derivatives clearing organisations, representing 45%
of the total segregated balance.
“Each firm maintained assets in Section 4d segregated
accounts in excess of the net liquidating equities of each of its customers as
required under Section 4d of the Act and Commission regulations,” the
commission said in its report. “The limited reviews further found that, as of
the review date, each FCM maintained assets in secured accounts in excess of
the aggregate margin required on all customers’ open futures positions, plus
any unrealised gains and less any unrealised losses on the open positions, as
required by the commission.”
To acquire a snapshot of each FCM’s compliance with CFTC
segregation rules, the commission’s Division of Swap Dealer and Intermediary
Oversight (DSIO) relied on the records and third-party source documents
maintained at the FCMs. The CFTC said while investigators did not confirm
balances directly, several FCMs reviewed by the CME were subject to more
detailed testing procedures.
MF Global filed for bankruptcy after counterparties reacted
adversely to the disclosure of a US$6.3 billion bet on European debt. The
unwinding of client positions has been further complicated by the varied
liquidation policies of futures clearing houses in Europe and the US. It has
also been reported widely that regulators have determined that days before the
31 October bankruptcy filing, MF Global may have moved more than US$100 million
in client money to its own brokerage accounts. Some US$1.2 billion in client
monies are still believed to be missing.
In the UK, administrator KPMG began the process of returning
cash to clients this month. So far KPMG has recovered £594 million (US$916
million) of client monies held by clearing houses, exchanges and brokers,
representing 82% of known non-US segregated funds. However, James Giddens, the US-appointed liquidator, believes
much of these monies were segregated for US customers who traded on foreign
exchanges and should be returned to US customers.
a creditor’s meeting in London earlier this month, British MF Global customers
demanded their money back as KPMG said it has already racked up £17.5 million
in fees without returning anything to clients. KPMG told clients that those
with unsegregated accounts would be treated as unsecured claims alongside other
creditors. A first payment to segregated accounts is scheduled to be rewarded
after a London court hearing on 3 February.