The MF Global Bankruptcy and Missing Customer Funds

Rena S. Miller
Analyst in Financial Economics

Mark Jickling
Specialist in Financial Economics

On October 31, 2011, MF Global, a large brokerage firm registered with the Securities and Exchange Commission (SEC) as a broker-dealer and with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant (FCM), filed for bankruptcy. Details are lacking, but it appears that the firm failed as a result of losses from investments related to European sovereign debt.

Normally, brokerage customers are protected from brokerage failure. On the securities side, investors may receive up to $500,000 from the Securities Investor Protection Corporation (SIPC) if the failed brokerage’s assets are insufficient to meet customer claims. In futures markets, there is no insurance scheme comparable to SIPC, but customers are supposed to be protected by strict segregation rules: customer funds entrusted to FCMs are required to be kept in separate accounts and the FCM is not allowed to use them for its own purposes.

In the MF Global case, however, more than $900 million in customer funds were reported missing. (Subsequent estimates of the shortfall range from $600 million to $1.2 billion.) The CFTC, SEC, Justice Department, and the bankruptcy trustee are investigating and trying to locate the missing funds. Violation of segregation rules, if it occurred, is subject to civil and criminal penalties.

MF Global had about 50,000 futures customers with active accounts. About 17,000 of those accounts with open futures positions have been transferred to other FCM firms, in order that those customers may regain use of their funds. Customers who had cash accounts with MF Global, but not open futures positions, have had their money frozen. On November 17, 2011, the bankruptcy court approved distribution of $520 million, or about 60% of frozen customer funds. On December 9, 2011, the court approved a third distribution of about $2.1 billion in customer funds. When completed, customers should have received about 72% of their funds.

In the future, there may be additional partial payouts. Because the customer funds in cash accounts were not guaranteed, however, the final distribution of cash to investors may not occur until the conclusion of the bankruptcy proceeding, and it is not certain that MF Global’s futures customers will receive 100% of their money back.

This report provides information about MF Global, the rules for handling of customer funds, the enforcement of those rules, and the bankruptcy proceeding.


Date of Report: December 12, 2011
Number of Pages: 9
Order Number: R42091
Price: $19.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.