MF Global account liquidations might cause massive commodities selling on Friday

[pmbug]

The MF Global scandal might negatively impact the commodities markets on Friday. From a comment on Harvey's blog:

Harvey, MF Global appears to be short 1.5 billion per Zero Hedge.

http://www.zerohedge.com/news/mf-global-client-theft-estimate-doubled-15-billion

The liquidation order says customer accounts that are NOT transferred by November 4th (Friday) will be liquidated in the market.

Here is the court motion:
http://dm.epiq11.com/MFG/document/GetDocument.aspx?DocumentId=1442293


Here is Part 11.
11. The Trustee has determined that the Account Transfers will contribute to the prompt satisfaction of customer claims and the orderly liquidation of MFGI. Without effecting these transfers, the positions are required to be liquidated promptly and in an orderly manner. As set forth more fully below, the customers’ positions are required by Part 190 Regulations to be liquidated if they are not transferred to a transferee FCM before the close of business on Friday, November 4, 2011 (the fourth business day after the entry of the MFGI Liquidation Order). The liquidation of these customer commodity positions in all likelihood will negatively effect the net value to the customers and the markets in general.

How can they transfer them all if they are short of money?

Friday is a mass liquation day for 50,000 commodity accounts??? And the CFTC has no issue with this?

Am I reading this right?

From the ZH link:

... "As a result of the apparent segregation violations and the suspension of clearing privileges, more than 150,000 customer accounts essentially were frozen on October 31, 2011, of which more than 50,000 accounts were regulated commodities customer accounts. ...

 

[pmbug]

FWIW:

CHICAGO, Nov. 2, 2011 /PRNewswire/ -- Throughout this week, CME Group has worked diligently with the CFTC and the MF Global bankruptcy trustee 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.
...

http://www.prnewswire.com/news-rele...to-transfer-mf-global-accounts-133119133.html

It's still not clear how many accounts they are going to be able to transfer in time and how many are going to be liquidated.

 

[pmbug]

As I read it more closely, it appears that part 11 is setting a deadline for when accounts must be transfered before they will be ordered liquidated. Presumably any liquidated accounts will be traded off next week. I'm not seeing where a timetable is set for the liquidations, but if they dump them all on Monday, it's going to be a volatile day.

 

[pmbug]

I received the following feedback on this issue @ RPF:

#1 Investors that have futures accounts through either MF Global ... or have futures accounts through another broker that use MF Global as their trading partner and clearing merchant (Ex. E*Trade Futures account) have been able to liquidate positions during this mess. They simply cannot remove cash. According to some brokers at MF Global, this has certainly happened ... mostly out of customer fear and not knowing whether or not they will be able to close positions in the future. I know this because my futures account uses MF Global as the clearing merchant. So, it is quite possible that many retail customer positions have already been liquidated (Ex. on Monday and Tuesday).

#2 MF Global holds positions itself that it cannot liquidate. At some point, a court order can/will be issued to liquidate those positions. When that happens, it will have a market impact. But what if MF Global took a large number of positions on the other side of their customers ... maybe, a large number of Silver short positions? The closing of short positions would prompt upside pressure. The same thing would have happened with Bear Stearns in 2008 had JP Morgan not assumed their extremely large short positions in Silver. My guess is that the MF Global positions are not large enough to warrant a similar action (Silver would have gone parabolic in 2008 had the short positions been closed). But we shall see.

http://www.ronpaulforums.com/showth...assive-commodities-selling-Friday#post3712362

 

[pmbug]

On November 3, 2011, CME Group successfully transferred nearly 5,300 MF Global customer accounts and more than $410 million of CME Clearing-held collateral to other qualified clearing firms. CME Clearing continues to hold MF Global proprietary and customer collateral that will be distributed upon instructions from the Trustee and the bankruptcy court.

CME Group expects transfers for additional accounts at CME and the other exchanges and clearinghouses to continue throughout the day today. Customers with accounts transferring will receive communications from their receiving firm following the transfers.
...

http://www.prnewswire.com/news-rele...of-mf-global-customer-accounts-133238398.html

They are the 10% ...

 

[pmbug]

...
Facing a Friday evening deadline to transfer accounts or have them closed out, traders and brokers worked through the night to get customers trading again. By Friday afternoon, many reported that the bulk of the transfers had been done -- but most customers will need to top up millions in margin.

"The accounts we have here are actively trading as we speak," John Streich, chief executive of Penson Futures, told Reuters. His was one of 10 FCMs chosen to take over the positions, up from an initial six named earlier this week.

But there is still hard work ahead.

"The accounts did not come over fully margined, and we were aware of margin deficit and the amount of the deficit upon transfer," he said. "That's where the clients are, of course, upset ... (but) their frustration should be with MF Global."
...
While traders in theory have five days to increase their escrow, brokers may require full margin in as little as 24 hours for unfamiliar customers that may be a risk, he added.
...

http://in.reuters.com/article/2011/11/04/idINIndia-60330920111104

So the good news is that it looks like most of the accounts are going to be transfered to other brokers and avoid mandatory liquidation on Monday.

The potentially bad news is that since margin capital was lost or not transfered, it's likely that every transfered account is going to either have to put up more margin capital or liquidate their account anyway at some point next week.

There's no telling how many customers will be liquidating, but I suspect next week will still see some crazy volatility. It just won't be concentrated all on Monday.

 

[DoChenRollingBearing]

PMBug, you are doing great reporting from various corners of the financial markets I know little about (MF Global, and even Harvey Organ). This kind of material is exactly why I joined up here, so that I can learn something...

Thx for the comment at my blog!

 

[pmbug]

In spite of the CME's efforts, it's looking more and more like most of those MF Global accounts are going to end up facing margin calls or liquidation:

...
About $593 million in commodity customer funds are unaccounted for, according to a person with knowledge of regulatory probes into the failure of the New York-based firm.

The trustee liquidating the brokerage, James W. Giddens, has transferred 17,000 accounts to other firms, out of 50,000 commodity accounts that he said he would relocate, while releasing almost $1.6 billion in collateral, said Kent Jarrell, his spokesman. Many remaining accountholders may have to file claims for their assets, which have to be shared fairly with other claimants, Jarrell said.

Unless the missing cash is found, people hoping to recover 100 cents on the dollar may have to give up some of it to other customers, Harbeck said yesterday a phone interview.

“Giddens can’t let out more than a low percentage of assets before he knows what he owes to all commodity customers,” Harbeck said.
...
Customers of MF Global are asking when they’ll get their cash back, according to e-mails to Bloomberg News. If they have to file claims, the trustee must first get court approval for a system to handle claims and mail forms, Jarrell said yesterday in an e-mail.

A trustee’s duty is “to identify and marshal assets available to satisfy customer claims and to maximize the estate for all stakeholders in an orderly and fair process,” he said.

Commodity accounts that haven’t been transferred, along with securities accounts, will “most likely be subject to the claims process,” he said. Giddens is trying to find brokers to take “bulk” transfers of security accounts, Jarrell said.
...

More: http://www.bloomberg.com/news/2011-...ash-unless-missing-funds-found-sipc-says.html

 

[DSAbug]

I think we are likely to see those accounts transferred in bulk.

 

[pmbug]

Yes, they will be transfered - that's not the issue. The trading accounts are being transfered without the cash balances that satisfy initial/maintenance margins. Turd Ferguson @ TF Metals Report already had his (small) account transferred without the cash balance and is facing a margin call on it now:

First of all, my firsthand experience with MFing Global today. My puny, little account has been transferred to a firm called R.J. O'Brien in Chicago. My current positions transferred over intact but the cash did not. Now, it's not like it's make-or break money. It was only $3,100. However, where did it go? The nice people at R.J. O'Brien don't seem to know nor do they have any idea as to whether or not I'll ever "get it back". So, all the press regarding MFing Global co-mingling and plundering their client's funds is apparently true. My $3M as well as everyone else's cash has been, for lack of a better term, stolen. Not cool.

http://www.tfmetalsreport.com/blog/2887/doubling-down

I asked him for clarification:

... Turd, it sounds like your account @ R.J. O'Brien may end up facing a margin call or liquidation after all at some point in the next week or so unless MFing Global magically finds your (and everyone elses) money and transfers it. I'm concerned that you are a typical case and that we are still likely going to see a lot of account liquidations in the days ahead in spite of the CME efforts to help the MFing Global transfered accounts. Lowered margins are nice and all, but if there isn't any money in the account, it's still going to face a margin call eventually, isn't it?

http://www.tfmetalsreport.com/comment/83475#comment-83475

and he answered:

Yes, because MF stole all of my cash, my new acct has a margin call. If I don't add cash to it, it is subject to liquidation.

I have time to send a check because the acct is so small. The larger accts are bing forced to wire money immediately.

Limiting the amount of money that must be wired is the reason behind the lowering of margins last weekend.

http://www.tfmetalsreport.com/comment/83526#comment-83526

 

[DosZap]

Celente is out SIX figures.
He takes out Hedges, and as soon as he has enough money in them, he converts to physical.
He is about to puke blood.
CME MUST step up and make this right, or their dead meat.

 

[DoChenRollingBearing]

Everybody Knows

I am cross posting this here too, PMBug, I hope that is OK, please let me know if not.

---

I have written perhaps my most important piece at my blog yet. I believe that Thursday, Nov. 17 will be seen as an important day because so much rot, fraud and corruption became visible as the financial markets all cratered, even the good assets (like gold) were sold to cover losses in bad assets (European bonds).

The rot is everywhere, top to bottom, here and in Europe. I see on PMBug's ticker up there that gold, platinum and palladium are ALL currently down over $40 each per oz.

"Everybody Knows"

Or will. Drop me a message and I will send you the link to my blog.

 

[pmbug]

Yeah.. about that ~$600 million that is reportedly missing/stolen ... well, it might actually be closer to $1.2 billion that is missing/stolen...

... From Reuters: "The trustee liquidating MF Global Holdings Ltd'sbroker-dealer unit said on Monday that the apparent "shortfall" of customer funds may be larger than the futures brokerage had reported prior to its bankruptcy. "The trustee believes that even if he recovers everything that is at U.S. depositories, the apparent shortfall in what MF Global management should have segregated at U.S. depositories may be as much as $1.2 billion or more," the trustee, James Giddens, said in a statement. He added that the amount could change. ...

http://www.zerohedge.com/news/mf-gl...e-double-previous-estimate-could-reach-12-bil

"Andrei, you've lost another submarine?"

 

[DoChenRollingBearing]

I saw that just today as well PMBug! I also saw a comment at Zero Hedge that made a lot of sense: that the size of each of these financial shipwrecks is almost always 3 times bigger than the initial estimates.

Wow, just saw gold down $52.00 there on your ticker... I think they are putting up the "For Sale" signs...

 

[pmbug]

Thoroughly disgusting:

...
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.

That has investors fuming. "Warehouse receipts, like gold bars, are our property, 100%," contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. "We are a unique class, and instead, the trustee is doing a radical redistribution of property," he says.
...

http://jessescrossroadscafe.blogspot.com/2011/12/attempt-to-seize-and-liquidate-customer.html

 

[DoChenRollingBearing]

PMBug, Barron's had an article about that as well. I reviewed this weekend's Barron's at my blog. I wrote at some length about Erin Arvidlund's piece about how trustee JAMES GIDDENS has screwed a LOT of people who had "warehouse receipts" (which I gather is more-or-less "allocated" bars).

James Giddens needs more attention, and more people reaching out and expressing their feelings to him on this whole matter...


The Big Lesson here, pounded into our heads yet again :judge:

is if you don't have the physical at hand or very close by, it ain't yours!

 

[pmbug]

Pretty sure that quote is from the same Barron's article quoted at Jesse's Cafe.