From the December 01, 2011 issue of Futures Magazine • Subscribe!

CTAs MF Globaled!

Managed Money Review

Commodity trading advisors (CTAs) faced particular headaches over the MF Global bankruptcy. Many had customers at MF Global or exceuted through them. Also, because they are neither the account holder nor the broker, they were not necessarily in the information loop.

The first order of business was MF Global customers being put on liquidation only, which meant executing brokers could not accept MF Global give-ups, so CTAs had to try and access the MF Global order desks at a time of stress. "Those (MF Global) lines were pretty jammed up today," says Covenant Capital’s Scot Billington of Oct. 31.

The liquidation only process was a bit of a mess as well. "Even though we were told liquidations were possible, the exchanges kept turning on and off MFGI’s access. Frustrating for us CTAs and the people on the desks," says Marc Levitt, principal of Silicon Valley Quantitative Advisors.

Levitt, who executed through MF Global, had a couple of trades to make. One, a lumber roll, he could only liquidate and would have to enter the other end through another firm. More troublesome was a yen position, which was under considerable pressure because of a Bank of Japan intervention. "My Yen exit on the BOJ intervention was done well, although it was delayed," Levitt says.

A quick look at a yen chart on Oct. 31 would indicate many others probably were not as lucky.

Levitt says U.S. markets were smoother as he was cut off from other markets. "Basically no access to even liquidate, no information, no nothing. Even when positions were force-liquidated, people could not get confirmation fills," he says.

Positions that were transferred did not include any open trade equity, so many traders had to re-margin once positioned were transferred. The liquidation trustee basically held all of the customers’ profits, moving the position at the closing price of the day it moved.

"We had a lot of customers that just closed their accounts," Billington says. He understands that reaction, but adds that there is no guarantee they will return, especially those customers new to futures.

The process was disorganized and likely will leave a wake of accounting problems.

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