FM: The SIPC trustee didn’t seem up to speed on futures operations. Did this delay what could have been a speedier recovery of customer funds?
TD: I don’t have domain expertise in this. We did a lot of things to speed up the process to get as much money back into the customers’ hands as possible by pledging the $550 million to the trustee. We had a liquidation facility on day one for people who wanted to liquidate, so that was a misdirect [to say] that people could not liquidate their positions. We also moved 36,000 accounts within four days of the collapse of MF Global to other brokerage firms and, in doing so, if you had an open position we gave 60% of the margin associated with the opening positions. Two weeks after that we gave 60¢ on every dollar for people who had cash only accounts, two weeks after that 72¢ on every dollar was returned to every MF Global customer from non-sufficient funds to cash only accounts to small accounts and accounts with large [balances]. It moved relatively quickly for the size and scope of what happened here. When you are out whatever the money is, one day is too much and I get that, but overall when you look at it in retrospect compared to other bankruptcies, this was a pretty expedient return of a good chunk of the money.
FM: Aren’t there some people with physical holdings who are not at 72%?
TD: Some people are not at 72% because there are warehouse receipts related to gold and silver, and there are some that don’t have 72% because they have warehouse receipts on grains that have loans against them. If you have a loan that you have a warehouse receipt on, that is still MF Global’s property. So the trustee said if you want to buy that back, we will give you 72% of that also.
FM: Several people in the industry suggested that CME should have made customers whole and take over all their claims. Was this considered?
TD: There is $158 billion in customer segregated funds. For CME to step in and say ‘we’ll take whatever the shortfall is to MF Global,’ what kind of moral hazard [message] does that send to the rest of the clearing member firms? That we are willing to go on the hook for $158 billion, so anytime you get in trouble you dip into seg funds and you say [the CME] will make it good. Does that make any sense? The CME did not cause this. I succinctly went through that at the Congressional hearings and nobody refuted my testimony, including Jon Corzine and [MF Global Holdings President and COO Bradley Abelow, and CFO Henri Steenkamp] when they were asked ‘did you go to the CME at 2 o’clock in the morning and tell them to stop looking for the accounting error, that you transferred $900 million of customer money to the broker dealer. Did you tell that to them?’ Their answer was yes, which means they didn’t refute that they violated the exchange rules.
Duffy testimony to Senate Committee on Agriculture on Dec. 13, 2011