The risk you face with an American based commodity future trading account

[Black Panther]

Hi

Those post is a must read for every body which has or plans to open a commodity future trading account in the United States. Some of you may heard about the MFGlobal bankruptcy. Traders in India, which have there money with an Indian broker, have not been touched directly by this case as MfGlobal was not directly at the Bombay exchange. They had some kind of joint venture with an Indian company and that was it. Even than, after going through this post you may check also in India how secure your money with your broker house stays.

MFGlobal was a Wall Street based commodity future broker. It worked with over 70 different exchanges all over the world and was in this business one of the biggest player. Transactions with security's in any currencies was there main business.

Now they have gone over night, as the money lenders no more supported them with new money for there other daily business. If you do not known what it means read this:

MF Signs Death Warrant for Short-Term Funding: William D. Cohan - Businessweek

To stay with the reason of this thread, let me ask: Is there any thing we can learn regarding MFGlobals bankruptcy?

Some little of us have been clear about the legal ways the law allows brokers and banks to use segregated customers accounts. Many never had any idea about it, as it is not described in any risk disclaimer when opening any trading accounts with brokers and banks and others just not wanted to believe it.

So, as we know this as a common behavior in the past, we accepted it. Why? Nobody thought that the money could be stolen from this segregated accounts. Now this has changed over night. MFGlobal's case smells like fraud. It is hard and naive to believe that this is just a matter of searching an finding some missing 600 Mil USD in a few days and then back to normal business.

MFGlobal was a global player. MFG had all opportunities to transfer any kind of money to any place all over the world in seconds and this 24 hours a day, 7 days a week. Nobody would ask any questions when sums of 10 Mil there and 20 Mil here and so on would be transferred in the name of MFG. In that way, insider of the case could send money all over in a protected and hidden way. And that is what has to be proved now if it had happen. The FBI has started investigation beside other big institutes.

Questions appear here: Does the FBI just jump in any case? And why did Mr. Corzine, the ex chief of MFGlobal and ex chief of Goldman Sachs hire a white lawyer which is specialized for criminal laws?

To prove, that there may have been illegal transactions, will take time, even every body promises to work with highest pressure on the search for the money. Just to inform: The Lehman Brother case from 2008 is still in work.

But what about all this 150'000 accounts which are frozen; 50'000 from them pure commodity future trading accounts?

Some of this accounts have in the mean time been transferred to other brokers. But which ones?

First off all only the ones which had open security positions in the market. Those account holders started to face an other huge risk: Not being able to give orders what has to be done with there positions. Market did not wait for them and moved on. Imagine you are one of this customers!

Now some of this accounts are with other brokers and in most cases it was possible to close all open positions which MfG had. Loss which occurred on any open position has to be paid from the owner of the position, means the customers/trader, even it was not his fault that Mr. Corzine flow the company over night in a mountain !

But not enough of frustration at this stage; It just started now. Cash, which was held with MFG, is still frozen with the company as the trustee, Mr Gidden's company which already handled the Lehman Brother case, gives not any money free. Why?

If there is any money lost, it has to be shared with all, percentage to the amount which is lost !! Most traders and account holders thought: What the hell do we have to care if the company makes his own bets and then looses there money. Our money is our money and that's it. But this is not the case. In American law, the customers can be token in custody when there broker house goes bankrupt.

So, no money no honey and if you had all or at least a lot of your money with the broker house, which many have, there lives have changed over night as they not can touch there money and are not sure if they ever will get it and they even have to pay for any losses which they had when having positions which went south, as the new broker will ask for money for the exchange, which paid the loss witch exist on this security's.

Now, what can be done by your self to not experience such hug risk when opening a commodity future trading account in the States?

Here we should divide in smaller traders and bigger traders/companies. Do not forget, that many frozen accounts have a value of many 100K till a few Millions.

The small traders should just put enough money in any such accounts to be safe with his margins. He should open different accounts with different broker houses. If the next broker fails, not all his munition is at risk and he can trade with the other accounts.

Any money which is not needed in such accounts has to be taken out immediately and placed in saver harbors, what ever this is by your personal choice. Do not think it will not happen again. Think it is your money! and the law in the United States doe's not protect any commodity future accounts until now. May this case with MFG will change the whole industry, but as today, you are not protected!

Bigger traders and companies may go through this articles to get an idea, what may can be done to there safety:

More MF Global: Be Cautious Folks in [Market-Ticker]

All the best

Black Panther



Here some more links for those which are interested in the case:

MF Global Customers Have Few Options to Access Frozen Cash - Businessweek

INSIGHT-MF Global bust erodes trust in brokerages | Reuters

US commission orders review into all futures firms after MF Global collapse - The China Post

Business & Technology | CME offers $300M to help unfreeze MF Global funds | Seattle Times Newspaper

[Black Panther]

Hi

MF Global Scandal: Is CME's Financial Guarantee Of Millions Just A PR Gimmick? | Business News | Minyanville.com

and then go next ( page 2 ) to read the whole article.

Black Panther

[SuperTrader]

Extremely insightful. Truth about the industry.

[Black Panther]

Hi

I mean, that is a shame what those f*****s did with the customers money. Read the following and you know how much they cared about any customers money. They really gave a shit about it. Sorry when I talk like that, but there are no other words for such kind of behavior.

And if you read in detail, you see again and again, that every broker house in the States can do that with your money in case you have a commodity future trading account in the United States.

We all have to wait until the law has changed in the States about that. Some people of my acquaintance work on some project about this case. I will let you know as soon as there are any acceptable compromises.

Here the newest article which shows the risk you face with any CFA in the UST:

Probe finds MF Global used funds of customers

Dow Jones Newswires/Wall Street Journal 5:08 p.m. CST, November 17, 2011

Regulators have unearthed more details about MF Global Holdings Inc.'s activities in the days before its bankruptcy filing that suggest the securities firm shifted hundreds of millions of dollars in customer funds to its own brokerage accounts, according to people familiar with the matter.

MF Global's internal records indicate that the company moved segregated customer funds in transactions as large as hundreds of millions of dollars at a time, these people said. The money was transferred out of the unit that houses the assets of futures-trading customers and went into the accounts of MF Global's brokerage, people familiar with the situation said.

Such moves could violate regulations stipulating that commodities brokers can't mix customer funds with brokerage funds. Brokerage funds often are used to back proprietary-trading positions.

MF Global officials are still working to piece together what happened in the last days before the Oct. 31 bankruptcy filing. It is common practice among futures brokers to maintain a buffer of firm capital in customer segregated accounts to protect against possible customer losses.

However, MF Global officials believe it was acceptable to use that buffer when needed for the company's own purposes, people familiar with the matter said.

Still, it appears increasingly likely to regulators from their investigation so far that MF Global burned through all of its capital buffer during the week before the bankruptcy filing, and then started tapping customer funds, according to people familiar with the matter.

Whether that occurred intentionally or by mistake in the confusion of the securities firm's moves to stave off bankruptcy isn't clear. But the money, estimated at about $600 million, still is missing and might never be recovered.

Commodity Futures Trading Commissioner Scott O'Malia said in a statement this week that it “appears that MF Global failed this fundamental responsibility” to not commingle customer and proprietary funds.

[Black Panther]

Hi

That is what we got today and the same happen to all transfered accounts to any broker out there:

R.J. O’Brien Margin Policy Update for Former MF Global Customers

Former MF Global customers transferred to R.J. O’Brien were delivered with up to 80% of the maintenance margin requirement related to their accounts.

As a result, every former MF Global account faces a margin call. No excess equity was transferred.

All former MF Global customers must wire R.J. O’Brien additional monies to bring their account above its initial margin requirement or liquidate their current trading positions.

If the account did not contain a trading position, former MF Global customers must wire or mail R.J. O’Brien funds to initiate trading as no excess equity was transferred.

All Margin Calls Must Be Met By Wire

Former MF Global customers will need to begin initiating payment to meet margin calls immediately.

Customers will need to wire monies to the following account:

Harris Bank, Chicago IL
ABA #071-000-288
R.J. O’Brien Cust Seg Funds
#386-015-2 FFC:
Customer Account Name FFC:
Customer Account Number

All under margined accounts will be subject to liquidation. After your account has been properly margined, the regular R.J. O’Brien margin policy will be in effect.

[Black Panther]

Hi

J.P. Morgan, Bank of America and others are only attempting to steer the Commodity Customer Coalition (CCC) for there own purposes at the expense of MF customers

In his role as an attorney and spokesperson for the CCC, Koutoulas was able to provide Benzinga with an insider perspective on the legal maelstrom that has been unleashed in the wake of the futures brokerage’s bankruptcy, and the subsequent discovery of $600 million in missing customer funds.

Here an other, already existing but not acclaimed very critical aspect of the whole mater/risk customers face, as this banks have no problem to easily hire expensive lawyers for 10 or 20 millions, where on the other hand normal customers are not able to do so. This was the same problem with the Lehman Brother bankruptcy, where the big creditors finally just polished of the small customers:

Benzinga Talks to MF Global Customer Counsel James Koutoulas - Forbes

Black Panther