Over the past two weeks, the KCBT said it has worked with the CFTC, bankruptcy Trustee for MF Global and the futures brokerage firms, called futures commission merchants (FCMs) that agreed to accept MF Global customer positions to complete the transfer of customer positions and a portion of the customer margin collateral held by KCBT Clearing Corporation for MF Global customers to the receiving FCMs, in accordance with the Trustee directions.
At the time of the bankruptcy filing, MF Global’s customer positions at KCBT Clearing Corporation were in compliance with clearing margin requirements, KCBT said. Almost all customer positions were transferred to receiving FCMs on Nov. 4, and a portion of the customer segregated funds held by KCBT Clearing Corporation for MF Global customers was transferred to the receiving firms per the Trustee directions on Nov. 7, KCBT said.
As of Nov. 16, KCBT Clearing Corporation has successfully processed and settled all remaining MF Global customer positions and has returned the remaining customer segregated funds held by KCBT Clearing Corporation to the Trustee to assist in the return of customer account balances, KCBT said.
KCBT also clarified what it said are some misconceptions regarding MF Global's shortfall of customer segregated funds. There is a difference between the CFTC Part 190 bankruptcy regulations and exchange default rules, KCBT said, notably:
“MF Global was required by federal law (the Commodity Exchange Act and CFTC regulations) to maintain adequate segregated funds to cover its liability to all of its customers that had a positive net liquidating value in their segregated account balances. As has been reported, the total pool of MF Global segregated funds is insufficient to cover that customer liability, though the precise amount of the deficiency is at present unknown. Part 190 of the CFTC regulations sets forth the process for handling the pro-rata distribution of funds to customers in the event its FCM is the subject of a U.S. bankruptcy liquidation proceeding and has a shortfall in segregated funds held to keep its customers whole. This is the process that is currently underway overseen by the Trustee. This process is completely different from and bears no relationship to clearinghouse default rules.”
Clearinghouse default rules and procedures are in place to protect the financial integrity of the clearing members on the opposite sides of trades in the event a defaulting clearing member fails to pay the variation call necessary to satisfy and make whole the opposite parties to the defaulting firm's trades. These rules ensure that, in the case of MF Global, had the firm not been able to meet its margin call to KCBT Clearing Corporation and there had been a shortfall of margin collateral on deposit at KCBT Clearing Corporation to satisfy all clearing members on the opposite sides of MF Global's customer positions, then in accordance with Rule 8.03, KCBT Clearing Corporation would have deployed other financial resources to cover the shortfall.