The demise of MF Global hit the futures industry like a mack-truck. Allegations that the firm used customer money to cover its own financial shortfall in its last days, has left the industry and investors without knowing who can be trusted, finds Elise Coroneos.
Long a sacrosanct obligation in the futures industry, the
legal requirement to segregate customer money from firm money
might have been breached, resulting in many investors taking
money off the table, say industry insiders.
Since allegations have been made public, FCMs and industry
participants have bunkered down, answering enquiries from
clients looking for guarantees that they too are not doing the
What seems certain is that change is in the air. Already the
Commodities Futures Trading Commission voted in the first week
of December on a rule restricting the industry’s
use of customer money. Also impending is an expectation that
the US Securities and Exchange Commission will soon follow with
new accounting disclosure rules for brokerage firms.
Things started to unravel for MF Global when, in the last
week of October, Moody’s lowered the
firm’s credit rating citing concerns over its
European debt exposure after it placed a $6.3 billion bet on
the sovereign debt of five countries.
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