Although high-frequency trading has become the whipping boy of regulators and the godsend of exchanges, it seems a better villian of market instability is the bankruptcy of MF Global. I know I continue to harp on the injustice of what happened with MF Global, but I’m surrounded by people who have been — and continue to be — affected by it. And they are stressed.
A broker friend who was badly hurt financially due to MF Global’s failure told me he made an emergency visit to an ophthalmologist who told him he had a cataract. He’s in his 40s. The doctor told him this really only happens in someone so young when they are stressed — was he?
A trader friend trying to extricate his funds from the MF Global ruins is talking conspiracy theory, while another has lost several clients who wanted out due to broker, not market, risk. Even a farmer wrote to say he appreciated our coverage, and although he wasn’t personally affected by the broker’s demise, he sees “the damage that has been done to the integrity of the markets is almost irreparable.” Former employees are bitter, others depressed and many still are looking for jobs.
Seemingly above this acrimonious environment is Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, who recused himself from the MF Global clean up (only after handing it to the Securities Investor Protection Act or SIPA folks) due to his having worked for former MF Global CEO Jon Corzine while at Goldman Sachs. Gensler didn’t respond when asked how he felt to having this disaster happen on his watch. Nor does he think he owes it to the industry to resign, which has been suggested by many across the business.
In a panel during the Futures Industry Association meeting in March, CFTC Chief Counsel Robert Wasserman said that the CFTC didn’t have any choice but to hand the firm over to SIPA because MF Global was a dual registered broker-dealer/futures commission merchant. Despite this, panel moderator Fred Grede, the trustee still handling Sentinel’s demise, wondered why the CFTC didn’t fight the SIPA take over. Wasserman said it didn’t matter because the “law is the law.” In the end, even those angry with the CFTC for abdicating its duty to the securities side reasoned it didn’t make much difference who was in charge: Money was missing from segregated funds, and there’s the rub.
Although customers still await their money, some actions have been taken. For example, the CME Group now is requesting daily reports from FCMs on segregated funds. Perhaps a good move but one that really didn’t matter in the MF Global case as it already had to submit daily updates due to its earlier financial problems. The CME also announced a Farmer and Rancher Protection Fund, which would help producers during distressed times, like MF Global. Maybe a fine idea, but as one producer told me, “What makes farmers any different than any other commercial using the futures market to lay off risk? I mean, they may have deeper pockets to withstand losses, but I thought segregated funds were ‘sacrosanct’ and current law prohibited their violation.”
In Washington, a House Financial Services subcommittee questioned former MF Global employees including Edith O’Brien, former assistant treasurer, who pleaded the fifth. A Congressional staff memo stated O’Brien had indicated it was “per JC’s direct instructions” that funds got transferred out of seg fund accounts. A later addendum stated “in actual fact, the Hearing Memo does not purport to directly link Mr. Corzine to the loss of $200 million in customer funds.”
Also, the MF Global Inc. trustee now is hinting at going after MF Global Holdings and its officers. Five months later. Apparently speed is needed only in trading.