The collapse of MF Global could strengthen US laws and accelerate the implementation of MIFID II after a judge in New York last week approved a bankruptcy plan for the collapsed brokerage, according to buy-side firms.
The court’s decision followed the publication of a report by trustee Louis Freeh accusing MF Global CEO Jon Corzine of negligence. The report claimed inefficient and outdated control systems had made it impossible to monitor liquidity and “crippled the clearing and settlement of trades, which became a decisive threat to [the firm’s] ability to function”.
BTR Trading Group managing director John Roe, whose Commodity Customer Coalition represents former MF Global clients in the bankruptcy process, said he welcomed a decision expected to reimburse customers from US$41 billion in assets. But he said there was no guarantee customers would be first in line if it were to happen again.
“If customer money isn’t where it should be, customers need to be paid back from the assets. That’s implicit but not explicit in US law,” said Roe, whose organisation has provided recommendations to a Senate subcommittee for a “surgical” strengthening of existing legislation.
Meanwhile, Steven Wood, founder of Global Buy-Side Trading Consultants, suggested the decision could accelerate the currently delayed implementation MIFID II and EMIR.
“With a bit of luck [the MF Global liquidation] will focus European regulators’ attention back on CCPs,” he said. “CCPs are the first step, then the market structure will follow, though investment banks will be reticent about OTC derivatives going onto exchanges. The delay is with the political triangle of negotiations between the European Parliament, Council and Commission. This could help push it a bit.”
He added: “With MIFID, there’s been a slow approach to implementation. Regulators’ focus has been on the banking arena. But that’s been resolved earlier than expected so there may be some progress with EMIR and MIFID, though I’m sceptical about forecasts that MIFID II will be fully finalised before the end of next year.”