They make sense now, because they were funded by raiding the more than $200 million in customer funds that were kept in segregated accounts at US Bank. The only thing that customers can hope to get back in the short-term is their share of the margin money that was on deposit with exchanges, and trustee Ira Bodenstein says there’s just $181 million of that “on hand.” On September 6, he asked the court for permission to begin sending $123 back in waves, with $58 million held back until he could be sure customer accounts themselves weren’t part of the scam. While the move was long overdue for the liking of PFG customers, the Commodity Futures Trading Commission (CFTC) says the books are still too much of a mess for a dispersal.
Even if approved, the 30¢ to 40¢ on the dollar distribution will not be enough to save scores of IBs and thousands of clients. More than half of PFG’s 400 IBs were guaranteed, meaning they were financially backed and supervised by PFG but also locked into exclusive clearing arrangements with them. Several commodity trading advisors (CTAs), some still smarting from the MF Global debacle, were forced to close shop.
A hearing on the dispersal is set for Sept 21, but Judge Carol Doyle already has given Bodenstein the green-light to let competing FCMs bid for the PFG accounts. If a suitable FCM emerges, the funds will be transferred to the new FCM, and customers who wish to keep trading simply can do so, while those who want to take their money and run can do so as well.
“It’s very important how that’s done,” says Howard Marella, president of Index Futures Group, an independent IB that uses several FCMs, including PFG. “Opening new accounts takes time, especially if trusts are involved, so it would be best for customers and IBs alike if the accounts are transferred to a new FCM.”
Even if an FCM steps up to the plate, it’s not at all clear how many of those customers will elect to stay or how smaller IBs will manage the transition.
William Gallwas, president of independent IB Striker Securities, says, “About half our customers were impacted by MF Global, but 90% of them stayed. About 30% of our customers used PFG, and I don’t know how many of them will [stay].”
The implosion of PFG was a central theme at this year’s Burgenstock Meeting in Interlaken, Switzerland, which had been structured around the fallout from MF Global. Swiss Futures and Options Association Chairman Otto E. Nägeli chaired a session titled “MF Global — can similar surprises now be prevented?”
“Well, we know the answer to that,” said Nägeli. “That’s the nature of surprises.”