MF Global Australia - What are you doing?

For some reason I am on Seismo Market Solutions' mailing list, and I replied to their email last week when they ask MFGA CFD clients (of which many of their clients are) to come forward and be kept in the loop. I have copied the Seismo email for everyone's information here.

Note I am not endorsing Seimos' understanding of the situation or their recommended action. Personally I am filling out the Informal Proof of Debt Form as suggested by Brent Penfold's email.

With regards to voting Deliotte out - I have appointed Brent as my proxy. While I don't believe there will be enough numbers to remove Deliotte (or that Deliotte can actually use client's money to pay themselves), it will at least be a show of force so they know their fees will be scrutinised.

Dear MF Global CFD Client,

Many of you have received multiple emails from the MF Global receivers and administrators yesterday.

As a result, Seismo Market Solutions (as a partner of MF Global Australia Ltd) has received large number of email & telephone queries from MF Global clients who are confused by the emails sent, as to what they mean, what exactly they pertain to and what actions to take.

To the best of our understanding, we advise the following:

1. If you are an MF Global client with a CFD or other account you are NOT a creditor.
You do not have to open a new MF Global account as implied by the emails you may have received.
You only need to open a new account if you are a contractor or service provider to MF Global.

2. Due to the resulting confusion and continuing uncertainty as to the repayment of funds, we recommend that you draft a simple letter of demand to the administrators and send a copy with your latest MF Global CFD account statement attached, requesting full repayment of your funds within 7 days. Send the letter & your statement both by mail & email. We recommend that you do this in addition to any previous emails or correspondence you may have sent. Make sure you note your contact details, your MF Global CFD account details, your account name etc so that it matches the details on your MF Global account statement - to assist the administrators.

3. In an effort to help all clients who have MF Global accounts, we will be speaking directly with the administrators on Monday Nov 7th 2011 to clarify what exactly is going on and what actions MF Global CFD account clients should take in response to the emails you may have received yesterday. Pending the administrators response, we may notify you in due course (pending their permission for Seismo to do so).

4. Accordingly, we suggest that you only respond to the 3 x emails regarding creditors, proxies, etc if you fully understand what is required and or you have received instructions on exactly what you are required to do or how to respond from the administrators . If you are unsure on any aspect regarding your funds or any emails received, you should contact the administrators on 02-8273-8851 or 02-9322-7619 and or seek independent legal advice.

5. It is our understanding only, and based on communications just prior to the administrators being appointed; that MF Global CFD client funds had been returned or were lodged in the MF Global Australia Ltd CFD client segregated account, ready for repayment to clients. We understand that this may not apply to futures or other MF Global accounts.

6. It is also our understanding that the administrators have to fully reconcile both the cash balance and final closed positions of all MF Global CFD client accounts, before they can make any plans to repay client funds. Final open CFD positions were only closed this week and this had made reconciliation a slow process for the administrators. Seismo will use its best endeavours on Monday to further clarify this with the administrators - if possible.

7. Due the large number of enquiries Seimo has received, primarily regarding the repayment of client funds by the administrators of MF Global, we understand many clients are seeking independent legal advice as to what protection(s) may apply to their funds as a result of the funds being held in a CSA "client segregated account" with MF Global. We recommend that you take up what level of protection may apply to you, directly with the administrators. Again, Seismo will use its best endeavours to clarify this issue on Monday with the administrators.

We trust this information answers the numerous questions raised by the many MF Global CFD clients who have contacted Seismo since Thursday 27th October, 2011.
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We ask that you that you contact the administrators directly by email or by phone above from now on regarding your MF Global accounts.
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We will use our best endeavours to clarify all the above issues with the administrators on Monday and will forward any further information if possible and only if the administrators give us permission to do so.
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In closing, our thoughts go out to the many hard working staff at MF Global who are dealing with hundreds of enquiries and assisting the administrators as a result of this matter. We offer them our sincere thanks and gratitude on behalf of Seismo and all our clients who are affected by this matter.

Thanks for the info SKC.

http://economictimes.indiatimes.com...d-on-surge-in-offers/articleshow/10630153.cms

Hopefully we can have some good news tonight or tomorrow

Having received CMC's email this morning, I'm feeling heaps better:

Dear Customer [FONT=Arial, Helvetica, sans-serif]As you may be aware, last week saw a number of press articles referring to recent events in the financial services market and the issue of client money.[/FONT]
[FONT=Arial, Helvetica, sans-serif]I would like to take this opportunity to reassure you that as a customer of CMC Markets all of your funds are held in a segregated trust account with a top-tier Australian bank, established, maintained and operated in accordance with Australian Client Money Rules. This fully segregated model means all client moneys, including client margins, are 100% segregated.[/FONT]
[FONT=Arial, Helvetica, sans-serif]We do not use client money to hedge our positions or to meet the trading obligations of other customers. This exceeds current regulatory requirements under the Australian Client Money Rules. This is one of the factors that separates us from smaller providers and offers you financial security. As a result, you can rest assured that all client funds are completely secure.[/FONT]
[FONT=Arial, Helvetica, sans-serif]CMC Markets is regulated in Australia by ASIC and complies with Australian laws. As a CMC Markets’ customer you’re partnering with a stable, secure and trustworthy financial services company and one of the leading CFD providers in the world.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The fact that we now have a fully segregated client money model, our global operation is in a strong financial position and that we have robust internal risk management and compliance systems, means I can very confidently say to our Australian and New Zealand customers that in regards to counterparty risk, you have never been more safe and secure.[/FONT]

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Brent Penfold's recent efforts against the administrators of MF Global, Deloitte Australia, has made the Sydney Morning Herald.

http://news.smh.com.au/breaking-new...-wants-administrators-out-20111107-1n3pk.html

The collapse is linked to revelations that chief executive Jon Corzine had gambled and lost on $US6.3 billion ($A6.09 billion) in European bonds

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Not good!

If you have 6.9 billion why the hell do you want to risk it???
How much is enough?

Why cant people stick to the business they are in!!

If banks stuck to banking
Govts to Governing
Companies to the fields they have expertise.
Then we wouldnt be in the position we are in!

I dont have any funds with MF.
But are your funds safe ANYWHERE banks included?

A couple of questions...

1. There were supposedly between 30 and 50 offers for MF Global Asia before the weekend. If the asian/australian arm is bought out what does that mean for the clients? Will client money be returned?

2. I know its just a guess but what time frame are we talking to get our money (or part there of) back? Are we talking days,weeks or months?

tech/a said:

Not good!
I don’t have any funds with MF.
But are your funds safe ANYWHERE banks included?

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It almost justifies the occupy wall st stuff.

If these cowboys are still capable of doing this kind of thing after two years of financial hell for most of the western world, then clearly safety of innocents funds is always going to be at risk.
There is no doubt that computer programs could be created to identify excessive, uncovered risk that could prevent desperate cowboy trades such as Corzine's.

Seems that there is still no will to keep the human cowboy element lassoed even after all these crisis’s. If there were the political will there would be systems running that would prevent it. Better get my tent!

edman79 said:

A couple of questions...

1. There were supposedly between 30 and 50 offers for MF Global Asia before the weekend. If the asian/australian arm is bought out what does that mean for the clients? Will client money be returned?

2. I know its just a guess but what time frame are we talking to get our money (or part there of) back? Are we talking days,weeks or months?

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Good points edman79 and is one of the questions I sent to Brent as part of the collated questions to be put to Chris Campbell, Administrator.

My feeling here is that there is probably a lot going on behind the scenes that we are not aware of and will hopefully find out when the admistrators are able to disclose. I'm hoping there will be a quick turnaround on this as its not the sort of business that could sit on the shelf for too long.

I think a sale of these assets would be a very positive outcome for clients of MF Global that still have funds tied.

Lets just hope they secure a sale quickly.

Latest update on the sale:

http://economictimes.indiatimes.com...ected-by-end-of-week/articleshow/10651484.cms

I agree tech/a - your never 100% safe.

After a few emails to new CFD providers I have come to the conclusion that in the event of bankruptcy/insolvency client money will not be returned to the clients until secured creditors are paid first and the remaining funds (whats left) will be returned to clients. It really doesnt matter how "secure" the account that the money sits in is or how many comforting emails they send you.

My thoughts are that the best way to protect your money would be to have multiple providers with your capital split up so that if one provider goes belly up you dont lose everything.

I would like to hear other suggestions of how I can protect my money so this does not happen again in the future.

edman79 said:

My thoughts are that the best way to protect your money would be to have multiple providers with your capital split up so that if one provider goes belly up you dont lose everything.

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Unfortunate but probably true.

Client monies are not safeguarded because the regulator couldn't be bothered creating unambiguous and effective rules. I would like to see ASIC get off it's highly paid ar$e and implement rules that protect client monies held by all financial institutions. It's my money and I'll be damned if the administrators have access to it. Client protection should be given the highest priority. Sadly we are not.

It doesn't matter how morally or legally right a person's complaint is, ASIC will do nothing until 10,000 people complain. It would be good if all the trading account holders complained at the same time. Would this be enough to wake up ASIC?

And if ASIC is awake how about stopping the insidious practice of sub-licensing FS Licenses. The shadow broking and financial services industry is still ripping people off because ASIC has done nothing to prevent them.

Unfortunately the Aussie MFGlobal was undermined by another CEO that didn't understand leverage and risk. Good riddance and the parent company deserved to fail.

(skc: made a good point about doing business with a public company. Anybody could have seen the MFG share price going down over the past few months and taken some preventative measures.)

I don't understand why weren't all client positions closed out immediately. Flatten all positions could have been done within seconds. That's what computerised systems can do. Reconciliation should have also been able to be done within minutes. Checking that the money is in all the bank accounts may have taken another day (or T+3).

Another example of how the financial services industry treats client accounts.
ASIC please wake up to your responsibilities.

I went to a Seminar on CFD's some years ago and it had some sad people there, commission agents scared of head office with no power, and retirees and fly in out mini millionaires with attitude.

On the one side were the powerless and the other the marks.

I know nothing else about CFD, but if you take my advice on my gut feelings.

Avoid them.

gg

peter2 said:

I don't understand why weren't all client positions closed out immediately. Flatten all positions could have been done within seconds. That's what computerised systems can do. Reconciliation should have also been able to be done within minutes. Checking that the money is in all the bank accounts may have taken another day (or T+3).

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You would think this would be possible given the technology at hand.

It would be worthwhile to look at ASIC Client Money Rules Regulation 7.8.03 (under Australian Corporations Law) and ASIC Client Money Regulatory Guide 212 - Pg 22. It appears from these documents that client balances held with MF Global Australia are held in trust for clients and should be paid to the entitled owner of the accounts before any creditors, secured or unsecured. Please verify for yourselves - the statute and regulatory guide clearly stipulate the order of payment of client money balances in the event that the AFS licensee (in this case MFGA) goes into administration/becomes insolvent. Given the above would holders of client balances with MFGA be defined as "Client Money"? In my opinion, given the above, yes.

In light of the above, perhaps it would not be best for those client who hold balances with MFGA (ie "Client Money") to be defined as creditors? For client balances to be defned as creditors (most unlikely unsecured since we do not hold a charge against company assets) would seem to be in favour of creditors (secured and unsecured) including Deloittes (whose fees are just totally unacceptable) who may then be able to claim seniority over client accounts to get their fees paid from client balances. If possible, it is very worthwhile confirming this with legal counsel.

My interpretation from the above is that if client balances are held in trust for the owners, then as per the above regulations, no creditor should be allowed to touch them to get their fees paid.

The main risk for CFD and Margin FX account holders therefore should be (under ridiculous ASIC law that allows client balances to be pooled - not the case with many other reputable exchanges) that some positive client balances may be used to cover shortfall in margin / deficits in other client balances. Futures client balances are controlled by the futures exchange, not MFGA, so hopefully should be intact.

Would be very interested to here other viewpoints on this.

riskapur said:

It would be worthwhile to look at ASIC Client Money Rules Regulation 7.8.03 (under Australian Corporations Law) and ASIC Client Money Regulatory Guide 212 - Pg 22. It appears from these documents that client balances held with MF Global Australia are held in trust for clients and should be paid to the entitled owner of the accounts before any creditors, secured or unsecured. Please verify for yourselves - the statute and regulatory guide clearly stipulate the order of payment of client money balances in the event that the AFS licensee (in this case MFGA) goes into administration/becomes insolvent. Given the above would holders of client balances with MFGA be defined as "Client Money"? In my opinion, given the above, yes.

In light of the above, perhaps it would not be best for those client who hold balances with MFGA (ie "Client Money") to be defined as creditors? For client balances to be defned as creditors (most unlikely unsecured since we do not hold a charge against company assets) would seem to be in favour of creditors (secured and unsecured) including Deloittes (whose fees are just totally unacceptable) who may then be able to claim seniority over client accounts to get their fees paid from client balances. If possible, it is very worthwhile confirming this with legal counsel.

My interpretation from the above is that if client balances are held in trust for the owners, then as per the above regulations, no creditor should be allowed to touch them to get their fees paid.

The main risk for CFD and Margin FX account holders therefore should be (under ridiculous ASIC law that allows client balances to be pooled - not the case with many other reputable exchanges) that some positive client balances may be used to cover shortfall in margin / deficits in other client balances. Futures client balances are controlled by the futures exchange, not MFGA, so hopefully should be intact.

Would be very interested to here other viewpoints on this.

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Your right, segregated accounts are not MF Global's money to begin with. However judging by this article http://news.smh.com.au/breaking-news...107-1n3pk.html, Deloitte need educating on this point.

Nick29 said:

Your right, segregated accounts are not MF Global's money to begin with. However judging by this article http://news.smh.com.au/breaking-news...107-1n3pk.html, Deloitte need educating on this point.

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I am of the belief that it is in Deloittes and every other creditors interest to have client balances categorised as unsecured creditors - that way they can get their hands on the balances to pay themselves. This does need to be verified by qualified legal counsel, but if my hunch is correct - then all holders of client balances with MFGA should do everything they can to be seen as "client money" - meaning that the funds are held in trust for them and cannot be touched by external creditors, secured or unsecured.

riskapur said:

I am of the belief that it is in Deloittes and every other creditors interest to have client balances categorised as unsecured creditors - that way they can get their hands on the balances to pay themselves. This does need to be verified by qualified legal counsel, but if my hunch is correct - then all holders of client balances with MFGA should do everything they can to be seen as "client money" - meaning that the funds are held in trust for them and cannot be touched by external creditors, secured or unsecured.

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Thanks riskapur for your information on ASICS rules on client funds. I have lodge a complaint with ASIC against Deloitte based on this.

Many Thanks