MF Global Australia - What are you doing?

[captain black]

Some good news for MF Global Hong Kong clients...

The provisional liquidators of MF Global's Hong Kong business said on Wednesday they have won court approval to return HK$500 million ($64.25 million)of client money, around 40 percent of the total that was held by the brokerage.

http://www.reuters.com/article/2011/12/15/us-mfglobal-hongkong-idUSTRE7BE0A420111215

The statement by KPMG on the 2nd December stated that the distribution would be made within 1-2 months.

I've already mentioned it a few times but I'll say it again. With a global company like MF it's interesting to compare the priority different countries place on the prompt return of client funds.

 

[pifouSyd]

hatton01 and riskapur:

1) do you think getting direction from the Court is the only way? Can't we simply find a solution among ourselves, with the Administrator - there will be arguments and discussions, that's for sure, but wouldn't the prospect of all getting our money quicker be a motivation strong enough to get all of us agree to a reasonable compromise for everyone? At least isolate enough the people who would still not accept the agreement that it might not be worthwhile for them to attempt legal action?

Even if Deloitte goes to court and gets direction (The court would probably follow the Administrators recommendation), what would prevent all the people who disagree to oppose and subsequently lodge claims? The issues will only go away if we engage everyone and work out a compromise.

 

[hatton01]

Thanks Cap Black! I have sent this link to one of the reps on the CC that I am in touch with. Hopefully he will raise this at the next CC meeting on Dec 22.

Looks like KPMG still had to get court approval. I would think the Corp law in HK is very similar to Australia.

The KPMG folks in HK are obviously very efficient. Its a shame Mr Tony Fay didnt choose KPMG as it would have made more sense as all of the other MF franchises except the US are using them. We might have got a group discount

 

[captain black]

Thanks Cap Black! I have sent this link to one of the reps on the CC that I am in touch with. Hopefully he will raise this at the next CC meeting on Dec 22.

No probs, here's the link to the Dec. 2nd statement giving the 1-2 month indicative time frame. Note that they have approx 80% of funds and are releasing about half of that figure. Deloittes seem to be pushing hard on this idea of heated arguments between client groups. I see little mention of this by other administrators in other countries in their client notices. Make of that what you will.

http://www.kpmg.com/cn/en/PressRoom/Pages/statement-20111202-MF-Global.aspx

 

[pifouSyd]

We are ready to launch the web site for Clients. We'll likely launch sometimes tomorrow - watch this space. The website will be created under the umbrella of a non-for-profit association.

I need a volunteer to create a Facebook page in addition to the web site, which will be used to inform clients, support those in serious financial difficulty or serious emotional stress, and engage clients to work out a compromise. The person would work under guidance of the team managing the association and should be available to monitor the Facebook page after it's launched.

Any one interested please contact me on mfga.csg@gmail.com

 

[riskapur]

Hatton01,

Thanks for your reply - much appreciated. Your post is crystal clear in explaining that Deloitte need to go to court to get approval to distribute all the cash that we have in the product pools now. I am still not clear however as to why we cannot get a partial distribution (say 50%) immediately. Yes, Deloitte are saying that some clients are claiming they are owed more than their client balances on 1 November, the closing price methodology and haircut methodology are not finalised etc But the impact of these should not drop balances in each product pool below 50% or so.

The question is this. For all the excuses Deloitte are making for not making a partial distribution - will the combined effect of these problems result in cash balances in each product pool being less than say 50%. I think this is very very unlikely. Can someone check the claims of these clients that Deloitte say are claiming more than the balances? There is no excuse not to make a partial distribution NOW. HK have done it as well. US has done it, Canada has done it. In the case of MFGA in Australia, you do not need an in insurance or investor protection facility to make a partial now - US don't have one. There is almost zero chance the cash balances in product pools will now drop below 50% even with all the claims, slippages etc that Deloitte are claiming will happen.

Yes, I know Deloitte need to get this approved by court (lets say 50% partial distribution) but they could have done this weeks ago

Pifousyd, I am not at all suggesting we as client account holders go to court - exactly the opposite. What I am suggesting is as follows

1) Demand that Deloitte seek court order to make immediate partial distribution - say 50% or some % threshold the cash balances will not go below given that we have 67% futures cash balance recovered, 81% CFD, 80% Margin FX. Get Deloitte to get court approved order to make this distribution now as in the case with KPMG in HK.
2) Try and agree on price close out methodology amongst ourselves - I am suggesting VWAP as in my opinion, given the current circumstances, that is the fairest method for all account holders with open positions on 1 November
3) Get Deloitte to adopt the close out methodology agreed between us ASAP and then get an idea of what the haircuts would like in 2 scenarios. Get Deloitte to present the effects of haircuts as follows

a) Haircut applied proportionally to cash only and open positions as at 1 November
b) Haircut applied to only accounts with open positions as at 1 November

Make sure to check and verify from original sources all of Deloitte calculations - it is in their interests to show as big a difference as possible between the results of A and B - creates more division between account holders. Maybe our representative on Creditors Committee can do these checks.

4) We as account holders collectively review haircut scenarios presented then try to get consensus amongst ourselves as to the methodology we choose to adopt.
5) Then we tell Deloitte to get court approved final distribution based on this agreed haircut methodology.

Easier said than done, I know, but it is a suggested starting point. If anyone has better ideas by all means bring them forward but please explain the rationale why this would be better ie how this would get us as much of our money back faster in the fairest possible way

 

[captain black]

The timeframe for the HK payout looks to be only 2-4 weeks, not 1-2 months. KPMG in Hong Kong are still working through similar issues such as closing price information etc. that Deloittes are yet are willing to make an initial distribution in 2-4 weeks......

Cowley said the provisional liquidators would be working to making payments to the majority of the clients in the coming two to four weeks.

http://www.shanghaidaily.com/article/article_xinhua.asp?id=39194

 

[pifouSyd]

CME directors suing Jon Corzine and other MF executives. That will make my day.
http://online.wsj.com/article/SB10001424052970204026804577100680967560376.html?ru=MKTW&mod=MKTW

 

[redbin]

I'm not trying to be negative here but realistic.

I have said before that the Administrators will not put themselves in a situation where they could be subject to litigation, that is why they must seek direction.
None of this is about consensus (which you won't get anyway) or fairness, but about legality.
My understanding is that unlike in the US, a judge cannot over-ride legality on the basis of equity, that equity is a different court procedure.
Everyone will have the opportunity to put their legal case at the hearing. What we can hope for is a ruling which also happens to be fair to reduce the risk of appeal.
Having said all that, I don't see that a partial distribution would jeopardize their position.

 

[pifouSyd]

See attached the updated Futures pool collection as of 14-Dec.
Money collected is now 71% of the $208m client gross amount as estimated by Deloitte and presented on 11-Nov.
However the $208m is likely to change, essentially due to variations in positions still open on 1-Nov. For example, according to Deloitte, the additional $9m collected from BNY Mellon are essentially variations in positions. There could have been some currency effects as well, with the AUD down 5% from 1.05 on 1-Nov.

I also questioned Deloitte why they keep all balances in foreign currency rather than converting everything in AUD. MF Global employees were recommending doing this and the Deloitte person who called me to answer my question confessed of not understanding why the Administrators have not yet decided. Once again Deloitte is not sure what method to use. Meanwhile, until we know how they will convert, it is hard for us to put an efficient edge, having to guess what is best. Again, Deloitte is not understanding a fundamental principle of trading which is the management of risk. Deloitte's indecision is creating (unnecessarily) unmanageable risk.

 

[hatton01]

I'm not trying to be negative here but realistic.

I have said before that the Administrators will not put themselves in a situation where they could be subject to litigation, that is why they must seek direction.
None of this is about consensus (which you won't get anyway) or fairness, but about legality.
My understanding is that unlike in the US, a judge cannot over-ride legality on the basis of equity, that equity is a different court procedure.
Everyone will have the opportunity to put their legal case at the hearing. What we can hope for is a ruling which also happens to be fair to reduce the risk of appeal.
Having said all that, I don't see that a partial distribution would jeopardize their position.

Have to agree with you redbin! And at this stage no one else can do this other than the Admin via the courts. We still have input to the whole process via the CC's for each pool. How much of what they have to say will be taken onboard by the Admin is anyone's guess!

 

[captain black]

Have to agree with you redbin! And at this stage no one else can do this other than the Admin via the courts. We still have input to the whole process via the CC's for each pool. How much of what they have to say will be taken onboard by the Admin is anyone's guess!

I agree too, there needs to be a legal direction given by the court as there has been in every other jurisdiction. But this shouldn't be a reason to hold up an initial distribution similar to what is happening in Hong Kong.

 

[Trader101]

One thing I don’t understand, Why does Deloitte need to wait for all the statement from DBAL before they can go to court with a method of distribution.

Shouldn’t they come up with a METHOD for working our client balance first and win court approval for this method. and once the method has been agreed then use DBAL statement to work out the balances?

I mean if the closing trades from DBAL different from what was expected then there wouldn't be a reason to change the method RIGHT?

Why delay this process until after getting all the data from DBAL. Can someone from Deloitte pls answer this question on the forum if there is a valid reason?

 

[hatton01]

Hi trader101,

Good poinit. If you want an answer pls raise it with the committee (see below):

Q. How can I voice any concerns with the Committee?
A. You can email queries or concerns to mfgaustralia@deloitte.com.au with the subject title,
“F.A.O. Creditors’ Committee”. I will ensure that all of these queries are collated and directed to
the Committee.

 

[mmis4168]

I wish, we could have something like this here

http://www.kpmg.com/UK/en/IssuesAnd... Special Administrators' proposals secure.pdf

 

[gav]

This might put a smile on the faces of a few affected by MFG.



Oh, and I wouldn't want to be Obama at the moment...

 

[hatton01]

Hi Riskapur,

Re your question ie: "I am still not clear however as to why we cannot get a partial distribution (say 50%) immediately. Yes, Deloitte are saying that some clients are claiming they are owed more than their client balances on 1 November, the closing price methodology and haircut methodology are not finalised etc But the impact of these should not drop balances in each product pool below 50% or so".

The best way to get an answer to this question is via the CC reps.

Some answers that I got from various emails I have sent / received :

1/ In terms of haircuts those of us who did not have any open positions will be treated as a seperate group.

2/ The courts are in recess for the rest of Dec & all of Jan.

3/ Next CC meeting (next Fri) should formalise the close out methodology.

4/ When the courts are open (early Feb) for business the Admin should have everything he needs in terms of reconciled accounts & a methodology. Before the end of Feb I think he will have court approval for the remittance of funds.

In terms of the court process it should be completed fairly swiftly as there is significant pressure on the Admin by both sides of politics to return our funds at the earliest possible time.

Still I would urge everyone to keep sending those emails / letters to as many politicians (on both sides) as possible.

 

[pifouSyd]

Hi Riskapur,

Re your question ie: "I am still not clear however as to why we cannot get a partial distribution (say 50%) immediately. Yes, Deloitte are saying that some clients are claiming they are owed more than their client balances on 1 November, the closing price methodology and haircut methodology are not finalised etc But the impact of these should not drop balances in each product pool below 50% or so".

The best way to get an answer to this question is via the CC reps.

Some answers that I got from various emails I have sent / received :

1/ In terms of haircuts those of us who did not have any open positions will be treated as a seperate group.

2/ The courts are in recess for the rest of Dec & all of Jan.

3/ Next CC meeting (next Fri) should formalise the close out methodology.

4/ When the courts are open (early Feb) for business the Admin should have everything he needs in terms of reconciled accounts & a methodology. Before the end of Feb I think he will have court approval for the remittance of funds.

In terms of the court process it should be completed fairly swiftly as there is significant pressure on the Admin by both sides of politics to return our funds at the earliest possible time.

Still I would urge everyone to keep sending those emails / letters to as many politicians (on both sides) as possible.

I think that one of the reason that could prevent Deloitte to make a partial distribution is the amount of conflicting positions Deloitte has received from various clients, in particular in the futures pool.

As everyone is trying to get the best deal for themselves and "pull the bed cover to themselves", Deloitte is faced with potential litigation claims that could easily exceed the funds in the pool (ie a client with $1m in his account will make a claim for $5m or more, following the advice from his lawyer - it would not take too many such claims to suddenly represent a potential amount of claims that becomes significant); my guess is this one reason (or one valid excuse, depending on how you want to look at it) for not making a partial distribution.

One difference with the US or Canada is that most positions open on 1-nov got compulsorily closed, and/or when transferred, was done in a chaotic way as MF Global licenses got suspended. This is what has created some of the issues which now get people to seek compensation (essentially slippage issues).

While each sub-segment of clients will put very valid arguments - most of them I would agree with if I looked at them on a pure merit basis) - it is this segmented approach that is the largest threat to a seedy distribution of funds, because:
- the issues are complex from a legal perspective: for example, it makes sense to say that a cash-only account should not be penalised by a shortfall caused by margin not repatriated, it is not necessary legal, at least on the basis of the PDS and clients agreements. This will cause counter-claims of people with open positions who will disagree to let the cash-only account holders run with the money first.

This approach by segments of clients is by nature divisive, confrontational and much more prone to internal fighting among clients - which is precisely the ideal conditions for lawyers and Administrators to take over and burn all the money in fees.

I've been advocating for a simpler method looking at the updated account balances and simply distributing what's been collected.
There might be room for some negotiations, like a sweetener for the cash only account holders, eg they would be charged only 80% of the shortfall %, and the other 20% would be paid by those with open positions.
What is very clear is that any agreement among clients will be far far better than a deal resulting from a lengthy legal fight - both in terms of money left to share and time it will take to get what's left.

So we all need to take the helicopter view and ask ourselves:
If I could get 60% to 80% of my funds in 2-3 months, wouldn't that be better than trying to get 90% and in the end, realise 2-3 years later that this was an illusion, and that it would have been much better to get the money earlier.

Just as an example: a fellow trader is expecting the distribution from his funds held with Sonray - he received the notice that the distribution will be initiated soon ... it's now 3 years since his funds have been frozen.

The decision is in our hands - if we start to take segmental positions, I think we are heading in the wrong direction; it may sound like the route of more fairness, it's just a dangerous illusion.

What is 10% of one's funds compared to 2-3 years of funds frozen?

 

[pifouSyd]

In terms of the court process it should be completed fairly swiftly as there is significant pressure on the Admin by both sides of politics to return our funds at the earliest possible time.

I strongly disagree with this opinion - unfortunately, I had this experience myself several times. The court process will not be completed fairly swiftly. Not until there are clients with opposing views. The principle of law sits above the principle of fairness - as long as clients lodge legal complaints that are well argumented, the court must consider them, consider the opposing views, and this is what takes time. Not months, years. Lehman's Brother: 3 years on, no payments. Sonray: 3 years on, no payments.

Make no mistake - there is close to $150m in the futures account. Lawyers and the Administrators (and the Administrators lawyers) know that. This is where the money is. Where to lawyers focus their efforts? Where the money is.

The best way to get our money is to prevent it to be eaten by the lawyers and an everlasting Administration (saw the Ansett Administration - 10 years and $150m later, still going on - this is what happens).

If you think a legal process will be a speedy business think again and seek advice.

 

[gibson 787]

This approach by segments of clients is by nature divisive, confrontational and much more prone to internal fighting among clients - which is precisely the ideal conditions for lawyers and Administrators to take over and burn all the money in fees.

Totally agree with Pifousyd here.