Martin Lee @ Sg
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MF Global Files for Bankruptcy Protection

The big (and expected) news yesterday was that MF Global has declared bankruptcy.

A buyout by Interactive Brokers was abandoned at the last minute due to realisation that some money was missing from some customers accounts.

Regulators are now investigating whether MF Global diverted some customer funds to support its own trades.

The failure of MF Global has been largely blamed on their current CEO Jon S. Corzine, who joined them just last year and tried to convert MF Global from a pure brokerage house into an investment bank with its own trading desk.

The US$6.3 billion bet on European sovereign debt had turned very wrong. Interestingly, none of the sovereign debt was from Greece but the write-downs in the bonds of the other countries was enough to cause the damage.

In Singapore, the extent of the impact might be felt beyond direct customers of MF Global.

I know of at least one local brokerage house which uses MF Global as it’s CFD provider. Clients have been told earlier on to top up to a minimum margin of 25% for their existing trades or close off their positions. And then there is this note which clients of this brokerage house would have received in an email:

Please be reminded that any cash collateral furnished by you is being held with MF Global and you are taking MF Global counterparty risk.

I am sure many will be stunned by that revelation. Minibond saga part 2?

Leave a Comment:

Li says 10 years ago

It is now apparent that MF Global, at least in the US, failed to segregate customer funds. The amount of missing funds appears to be about 10% of their total customer funds. Therefore, the possibility of customers’ losing part or their funds on deposit is very relevant.

In America, an organization called SIPC insures cash deposits at broker dealers up to US$250k, and total cash and securities up to $500k. Is there any similar insurance scheme for investors with broker dealers in Singapore? Or will Singapore customers of MF likely face real losses on their balances?

There is a government scheme to insure an unspecified percentage of a bank deposit should the bank fail. Does this extend to accounts with broker dealers?


    Martin Lee says 10 years ago

    Dear Li,

    As far as I know, it doesn’t extent to accounts with brokers dealers.

Jason Kwok says 10 years ago

This will be a test for MAS rules on “segregated” account. Wonder will MAS check every client accounts to make sure that MF Global (Singapore) abide by the segregated accounts for clients.

Nuts says 10 years ago

That new CEO was former CEO of Goldman Sachs. After that he was governor of New Jersy. He knew what was at stake. He didn’t get to be top honcho of investment bankers or top politician by being goody goody. People who are law abiding, conservative, follow rules, don’t rock the boat, etc are usually not able to get recruited as investment banker, or will be fired within 1 year. Good investment bankers are lucky. He *was* lucky. But his luck ran out.

    sender says 10 years ago

    good point

Jason Kwok says 10 years ago

The new CEO is too ambitious to venture into investment banking. MF Global was successful as a brokerage firm.

Lesson learn, focus on what you do best.

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