06 February 2012

MF Global Collapsed in the Face of a $310 Million Margin Call Made by 'Undisclosed Party'

The margin call was predicted here about day two as I recall. The question in my mind is the extent that JP Morgan and any of their other bankers and credit line holders played in this.

It will be interesting to see how this case progresses from the Giddens-Freeh bankruptcy team and into the hands of the regulators and Justice Department.

So far (for the past three years) the Obama Administration has been adverse to looking too far into these sorts of cases before throwing a waiver or settlement without admission of any guilt on the table.

MF Global’s $310 Million Margin Call Exceeded Its Market Value
By Matthew Leising
February 06, 2012, 8:33 PM EST

Feb. 7 (Bloomberg) -- MF Global Holdings Ltd., the futures broker that filed the eighth-largest bankruptcy in October, faced a $310 million margin call on its final day that exceeded its market value.

Calls for payments tied to bets MF Global made on European sovereign debt increased Oct. 24 and continued through Oct. 31, the day the futures broker formerly run by Jon Corzine filed for bankruptcy protection, according to a report yesterday from James Giddens, a trustee overseeing the brokerage’s liquidation. MF Global had a market value of $198 million on Oct. 28 as it held $6.3 billion in European sovereign-debt trades.

After tracing 840 transactions of $327 billion in the company’s final days, Giddens is still analyzing where some of the $1.2 billion in missing customer money “ended up,” he said in the report. Corzine’s firm failed after credit-rating downgrades, a record quarterly loss and revelations about its $6.3 billion European debt trade unnerved investors. The missing money has sparked Congressional hearings and former customers have said it undermined confidence in the futures industry.

“For three months, our investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions,” Giddens said in a statement.

The trustee didn’t disclose the identity of the counterparties making the margin calls. The trades were cleared through LCH.Clearnet Ltd., according to an MF Global contingency plan drafted before its failure. In the plan, which was designed to address the effects of a credit-rating downgrade on the company’s solvency and liquidity, MF Global questioned whether it should move the debt trades out of LCH.Clearnet.

“How will LCH respond, how much in excess margin will be required, time period, can/will they force us out?” the brokerage questioned in a section of the plan titled “immediate decision making required.” The undated plan indicated the company could move some of the cleared positions to the over- the-counter market, where it could get more favorable terms.

Congress, the Commodity Futures Trading Commission, Securities and Exchange Commission and the Justice Department are investigating events surrounding the collapse of MF Global, including the disappearance of the customer funds...