MF Global bankruptcy - the story so far
A timeline of the events before and since MF Global filed for bankruptcy protection, LCH.Clearnet default declaration and the suspension of trading on the London Metal Exchange
Monday October 31, about 09:00 GMT:
Rumours circulate the market that MF Global business is in financial difficulty and the brokerage is in discussions to sell to a rival firm.
Monday October 31, about 13:30 GMT:
Rumours that all of MF Global’s London staff have been told to leave the office are found to be untrue as employees still answer phones.
Monday, October 31, about 15:00 GMT:
CME limits all trading for customers of MF Global for liquidation only, and blocks floor brokers and traders from the trading floor.
CME issues warning: “Effective immediately, and until further notice, CME’s Emergency Financial Committee, in accordance with rule 975, is limiting all trading for customers of MF Global for liquidation only.
“In addition, and until further notice, CME Group will no longer recognize MF Global or any of its divisions as a guarantor for purposes of floor trading privileges. Accordingly, floor brokers and traders guaranteed by MF Global or its divisions may not access the trading floor. The foregoing actions have been taken based on circumstances regarding the financial condition of MF Global.“CME Clearing will process any transfers at the last settlement price at the request of customers. Such positions will need to be re-margined at transferee firm. Customers wishing to execute a liquidating trade should contact MF Global.”
Monday, October 31, about 15:30 GMT:
The LME tells MB: “We’re monitoring the situation. MF Global remains a member of the LME and in good-standing with LCH.Clearnet....For the time being that remains the case.”
Monday, October 31, about 15:45 GMT:
MF Global Holdings posts a statement on its website saying it has filed for Chapter 11 bankruptcy protection in the USA.
Monday, October 31, about 18:00 GMT:
LCH.Clearnet issues a notice to all its clearing members stating it “has issued a default notice in respect of MF Global UK Limited”.
“We refer to LCH.Clearnet SA’s Clearing Rules (Rulebook Title IV – Chapter 5 – Event of Default), we hereby declare MF Global UK Limited (in Administration) to be in default.
“As a consequence, LCH.Clearnet SA can take all necessary measures as pursuant to (i) sections L440-I and the following articles according to the French Monetary and Financial Code (Code Monétaire et Financier) (ii) section L211-36 and the following of the French Monetary and Financial Code (Code Monétaire et Financier) and in the Rulebook as stated above.
“Capitalised terms used herein and not defined herein shall have the meaning given to them in LCH.Clearnet SA’s Rules.”
Monday, October 31, 18:36 GMT:
The LME issues the following statement saying it has suspended MF Global from trading after LCH.Clearnet default:
“1. MF Global UK Limited (‘MF Global’) has today been declared by LCH.Clearnet Limited (LCH) a defaulter under the Default Rules of LCH.
“2. Such a declaration constitutes an ‘Event of Default’ in relation to MF Global pursuant to Regulation 1.7 of the Default Regulations of the Exchange (the ‘Default Regulations’).
“3. Accordingly, the Exchange hereby determines, pursuant to Regulation 2.2 of the Default Regulations, MF Global to be a Defaulter.
“4. MF Global has been suspended from LMEselect and the Ring with immediate effect.”
Monday, October 31, about 19:00 GMT:
KPMG issues a statement saying Richard Fleming, Richard Heis and Mike Pink of KPMG LLP have been appointed as joint special administrators of MF Global UK Limited and MF Global UK Services.
Fleming confirms UK and overseas operations of MF Global UK have ceased trading and that the administrators are working with the regulatory authorities, clearing systems and other counterparties in relation to the orderly wind down of MF Global’s trading operations.
Redundancies are likely among the business’s 725 employees in the UK, Fleming said.
Monday, October 31, 23:41 GMT:
The Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) says attempts to sell MF Global to another firm had fallen through and reports “possible deficiencies”.
“Early this morning [US time], MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm. The SEC and CFTC have determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets. SIPC announced today that it is initiating the liquidation of MF Global under the Securities Investor Protection Act (SIPA).”
Tuesday, November 1, 09:00 GMT:
Brokers and MF Global’s clients scramble for clarification on the status of trades executed on Monday prior to the ring dealer’s default at the clearing house LCH.Clearnet.
Tuesday, November 1, 11:14 GMT:
LCH.Clearnet tells MB it is working with administrators KPMG to ensure all trades executed on October 31 are processed as intended.
It issues the following advice to clients:
“LCH.Clearnet Ltd is working with the administrators of MF Global UK Limited to try and ensure all trades executed on 31 October 2011 by MF Global or customers of MF Global, with the exception of trades for delivery tomorrow 2nd November, are processed as intended, as soon as possible. We are rolling open positions as at close of business last night in MF Global’s account for prompt tomorrow.
“Positions will be prioritised as appropriate. For further queries, please contact Dave Farrar +44 20 7426 7582. Information regarding position transfers can be found at www.LCH.Clearnet.com”
Tuesday, November 1, 13:34 GMT:
MF Global’s head of commodities Fred Demler is attempting to find someone to take on the metals unit of the brokerage which entered Chapter 11 bankruptcy protection in the USA on Monday, market sources told MB.
Tuesday, November 1, about 13:30 GMT:
CME Group’s cheif executive Craig Donohue said it has found that MF Global is in violation of both the exchange’s and the Commodities Futures Trading Commission’s requirements for the segregation of clients funds: CME finds MF Global violated customer segregation requirements
Tuesday, November 1, about 14:00 GMT:
Base metals prices struggle in the official session on the LME as traders considered what the default of ring dealer MF Global means for the wider market
Tuesday, November 1, 14:04 GMT:
The LME invites clients of MF Global to submit details of unsettled contracts
Tuesday, November 1, 15:45 GMT:
One trader tells MB how the events at MF Global have hit his business: VIEW FROM A TRADER: Bitter day for MF Global and its clients
Wednesday, November 2, 16:25 GMT:
LME sends out update on MF Global:
“LCH.Clearnet is managing all M F Global UK Ltd (MFG) and associated client positions. LCH.Clearnet continues to transfer client positions from MFG to other brokers and the LME is assisting them in their efforts. All client positions that have not already been transferred and are coming up for delivery will be rolled forward. MFG continues to process transfers but members and their clients need to submit a request to transfer according to LCH.Clearnet instructions. They should also notify LME market surveillance if they have queries on their positions or if they are unable to be transfer their positions according to LME notice dated 1 November 11 318 A311 W168.”
Wednesday, November 2, 20:07 GMT:
CME Clearing says it is holding substantial excess margin collateral from MF Global and therefore continues to be in a strong financial position, both with respect to MF Global and more generally.
MF Global’s customer positions on CME Group exchanges were and continue to be substantially over-collateralised at CME Clearing.
“As of today, the proprietary positions of MF Global have been liquidated with no adverse market impact, leaving a substantial part of that collateral to be applied to MF Global’s obligations at CME.”CME says it was not aware of an apparent shortfall in customer segregated funds held by MF Global:
“With respect to the apparent shortfall in customer segregated funds held by MF Global (and which were not on deposit with CME Clearing), it appears that any transfer of such funds occurred following the completion of CME audit procedures respecting such funds and in violation of CFTC Regulations and CME rules. CME completed its on-site review last week. At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011. CME fully discharged its auditing procedures in accordance with applicable procedures and standards and is working with regulators and authorities to investigate these transfers.”Wednesday, November 2, 23:54 GMT:
CME Group gets court approval to facilitate the transfer of MF Global customer positions to other qualified clearing members.
“We are pleased to share that the bankruptcy court has approved our proposal to transfer accounts to qualified firms along with a portion of CME Clearing-held collateral. We will continue to facilitate the transfer of positions and accounts of customers and affiliates of MF Global, and will also continue to assist the efforts of the CFTC and bankruptcy trustee to recover customer segregated funds held by MF Global.”
Thursday, November 3
The shortfall of customer funds that has transpired since MF Global filed for Chapter 11 bankruptcy protection is cause for concern, according to the chairman of the US Commodity Fund Trading Commission (CFTC) chairman Gary Gensler.
“The most troubling aspect about the MF Global situation is the shortfall of customer money at the firm,” Gensler told the US Senate Homeland Security and governmental affairs permanent subcommittee.
Friday, November 4
The Singapore Exchange (SGX) suspends the membership of MF Global, nearly a week after the brokerage filed for bankruptcy.
Friday, November 4, 09:50 GMT:
MF Global told by the LME and LCH.Clearnet that they will have to post collateral for a second time to have their positions transferred to another clearing member.
Monday, November 7
KPMG says less than half of the 1.61million open MF Global positions, including non-metal related business, had been transferred by the close of business on Friday,November 4.
Tuesday, November 7, 10:38 GMT
The LME reminds members that they must instruct LCH.Clearnet to transfer their MF Global positions to a new clearing member by 17:00 GMT Tuesday, November 8.
Instructions to transfer client accounts must:
1. Be submitted to LCH.Clearnet in the manner described in the Position Transfer Request process as outlined at www.lchclearnet.com, including evidence of the portfolio in the spreadsheet format required.
2. Be in respect of the complete client portfolio represented by trades held with MFG, no partial position transfers are allowed; and
3. Be approved by the new receiving Clearing Member by the deadline.
Any transfers will be made at the original contract price. Instructions previously received and acknowledged by LCH.Clearnet do not need to be resubmitted but we must advise that LCH.Clearnet is unable to act on instructions to close out individual client LME positions.
Wednesday, November 9
The Futures Industry Association says it is deeply troubled by the failure of MF Global and the financial distress that the apparent shortfall in customer segregated funds has caused its members’ customers and the markets generally.
Segregation of customer funds is the cornerstone that assures the financial integrity of our markets and any violation of these segregation requirements cannot be tolerated.
Wednesday, November 9
The CME Group dmits that the validation of each MF Global account’s collateral balance is taking longer than originally anticipated “due to the massive undertaking of processing data to verify 15,000 accounts for CME Clearing, ICE Clear US, The Clearing Corporation, KCBOT Clearing Corp., MGEX, NYSE Liffe US and The Options Clearing Corporation, as well as the unique circumstances of the MF Global bulk transfer process”.
The company expected that those customer accounts including only futures positions will be verified, and holds will be removed on a rolling basis beginning on the morning of November 9.
Following the completion of futures-only account verifications, the company will work to complete the process and remove any remaining holds on accounts involving options positions throughout the remainder of this week.
Thursday, November 10, 18:13GMT
The Commodity Futures Trading Commission (CFTC) announces that Commissioner Jill E. Sommers will be acting as the senior Commissioner for the agency in matters relating to the bankruptcy of MF Global, Inc. (MFGI) and the shortfall of funds in MFGI’s segregated accounts containing customer property and funds.
The announcement comes after Chairman Gensler recused himself from matters relating to MFGI.
Monday, November 14MF Global’s default led to the London Metal Exchange’s suspension of 274 steel billet warrants on November 11, a spokesman for the exchange told Metal Bulletin.
Stemcor later confirmed that it owned the warrants, in a statement emailed to Metal Bulletin.
Wedensday, November 16INTL FC Stone set to take over MF Global’s metal team and book, metal trading sources told Metal Bulletin
Thursday, November 17
KPMG is working to comply with London Metal Exchange lending guidelines regarding suspended billet warrants held by MF Global for steel trader Stemcor, joint administrator Richard Heis told Metal Bulletin.
Saturday, November 19
A New York judge’s decision to expedite payment to some MF Global Inc. customers is good news for copper market participants, but it hasn’t alleviated long-term concerns incited by the company’s bankruptcy filing.
Wednesday, November 24
MF Global UK’s special administrator KPMG does not yet have control of the “vast majority” of client monies and assets, the firm told clients..
Thursday, November 25
The London Metal Exchange approves an application by INTL FC Stone (Europe) to become a ring-dealing category I member of the exchange after adminstrators KPMG confirmed that INTL FC Stone had bought the metal division team of MF Global, as previously reported by MB, on Friday, November 25.
Friday, December 9
Low interest rates and pressure on commission from online brokerages and high-frequency traders drove down MF Global’s revenues and informed former ceo Jon Corzine’s strategy to turn the brokerage into a broker-dealer, according to testimony he prepared for the US house of representatives.