Sean McGillivray, vice president at Great Pacific Wealth Management, comments on the demise of MF Global:
The bankruptcy judge overseeing the liquidation of MF Global approved a CME plan to allow MF Global futures accounts with CME positions to bulk transfer out to a possible five different FCMs along with the minimum margin requirement to hold the open trades.
What does this accomplish? Nothing, in short. Any market movement will throw these newly transferred accounts on a margin call forcing liquidation or capital contribution immediately. Welcome to your new FCM, I know you had X number of dollars at MF Global, but now you have only a small fraction of that and I need you to send in more, like now!
The real issue is that because the CME Group erratically disrupted the ability for MF Global customers to liquidate open positions and offset risk, most traders liquidated all open positions even if they did not want to. How do you have any confidence when you are told you can liquidate any open position and then when you go to do so the connection has been suspended? Continue reading…