From the January 01, 2012 issue of Futures Magazine • Subscribe!

CTAs on the front lines of the MF Global battle

Managed Money

CTA and investor Andrew Abraham had 11 accounts with MF Global to transfer in the week leading up to the Oct. 31 bankruptcy. Two of them were transferred with both positions and capital; seven had the positions moved without capital; in two cases only some postions were moved and none of the capital. "It was an absolute mess," Abraham says.

"In the first 48 hours or so we tried to get out of these positions and nobody would take the give-ups," says Stanley Haar of Haar Capital Management. "In some cases they wouldn’t pick up the phone. The Kansas City Board of Trade wouldn’t pick up the phone from the MF Global desk starting on Monday, which I don’t blame them for."

Those accounts that were liquidated after the bankruptcy had a problem as the trustee refused to transfer cash positions of customers who liquidated after Oct. 31. Those customers did not receive the 60% in the second "cash only" bulk transfer but should be part of the third bulk transfer approved on Dec. 9.

Haar is very critical of the way the liquidation process transpired. "They left us with zero percent of the equity and 100% of the risk for a full week, which is beyond absurd, it is almost criminal."

These various glitches are perhaps why it was a CTA who launched the Commodity Customer Coalition (CCC).

Haar had about 10% of his business frozen as well as one of his personal trading accounts. "Obviously it is lost revenues, lost trading opportunities and a nightmare having to spend so much time battling to get money back for our clients, which is obviously subtracted from [the] time we dedicate to manage trading," Haar says.

Haar, along with many CTAs, took an active role with the CCC. "One of the more gratifying things in this whole episode was seeing how people who didn’t know each other before and to a certain degree were competitors, all came together because we recognized after the first week went by and there was almost total silence from everyone who should have been playing an active role, that we were on our own and there was no one representing our interests."

Haar says it took the CME a week to respond and is still waiting on the CFTC. "The CFTC has been brain dead basically all through this process," he says.

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