MF GLOBAL UK Limited (IN SPECIAL ADMINISTRATION) ("MFG UK")
The special administrators have received a large volume of queries from clients concerning the current position of MFG UK and the return of client money. We have noted and acknowledge the difficulties and frustrations being experienced by clients and we are devoting a significant amount of our own resources and MFG UK resources which have been retained (including the client money team) towards an early resolution to these matters.
We have set out below answers to a number of frequently asked questions, some of which will affect you directly. With respect to your own individual circumstances, we are endeavouring to provide you with full information of your position as recorded by MFG UK as soon as is practicable.
MFG UK is a large investment firm which has thousands of clients and dealt with millions of transactions at any one time. The scale and complexity of the circumstances facing the special administrators are substantial and we are working with staff at MFG UK to understand each client’s position with MFG UK as soon as possible. Where relevant, this includes also assistance with the transfer of open trades/positions to another broker and/or reconciling trades/positions where they are being or have been closed down.
As at the date of appointment of the special administrators, there were approximately 1.6 million open positions transacted through a multitude of exchanges and markets located in over thirty jurisdictions. The substantial majority of open positions have now either been liquidated or have been transferred to other brokers.
The main reason for the delay is that (as of today’s date), there remains a very large number of accounting entries to be made to bring the books and records of MFG UK up to date as at 31 October 2011 and also to show the effects of the defaults when the necessary information is received by MFG UK. Previously MFG UK’s systems were able to process much of this automatically through electronic links to exchanges and banks; however, as a result of terminations and defaults by the exchanges and clearing houses across the markets, that were triggered following the appointment of special administrators, a significant amount now needs to be handled manually. This is time-consuming.
What is happening with open trades/positions with MFG UK that I may have?
Where your trade/position has been transferred to another broker we will notify you as soon as possible, so that you can take appropriate action. These notifications are being communicated through MFG UK’s normal communication channels, and we are writing to each affected customer as soon as we can. We are not yet able to provide closing information to those clients who have had their trades/positions closed for the reasons described above. We are working to obtain the information needed to provide clients with more accurate final pricing and net position information and will provide that information as soon as practicable.
Statement information since the special administrators’ appointment
Certain trade and/or position, price and cash balance data provided to clients since 31 October 2011 is not necessarily reliable (for example because information was not up to date or complete at that time) and you should not rely on it. More accurate closing prices and statements of final trades and/or positions will be sent to clients in due course.
What is the position where I requested my account be closed and funds be remitted to me prior to the special administrators’ appointment?
It is clear that a large number of requests to close accounts and transfer funds made in the days preceding Monday 31 October 2011 were received by MFG UK but not completed. This may include circumstances where funds have not been paid to clients following such requests. Notwithstanding that these closure requests were made prior to the special administrators’ appointment, these accounts now fall to be dealt with under the special administration process.
At this point the special administrators are unable to action requests for withdrawals from client accounts, which are now subject to the formal procedures for dealing with such client assets set out in the special administration rules and the FSA’s Client Money Distribution Rules.
My funds were held in a segregated ‘client money’ account. Why can’t they be released immediately?
Notwithstanding their segregated status, these accounts require to be first reconciled and dealt with as part of the special administration process and in accordance with the FSA’s Client Money Distribution Rules. This process involves:
There are also important legal decisions affecting the treatment of client money which are still being litigated through the English courts. Some of these issues may impact the correct legal treatment of client money at MFG UK and it may be necessary to wait until the Supreme Court rules on these matters (in the case of Lehman Brothers International (Europe)), which is expected in the first half of 2012.
How long will the process to return client monies take?
We and the MFG UK staff are actively working to reconcile holdings and accounts in order to enable client money to be released as soon as practicable, which is one of our formal objectives in the special administration process. Each client trade/position must be recorded in MFG UK’s systems and reconciled with the records kept by the market or exchange on which the trade was transacted. In some cases, the reconciliation must also involve other brokers and agents through which the business was placed. The early distribution of client money is high priority to the special administrators and the reconciliation process is a prerequisite before client money supporting client trades/positions can be released to accounts controlled by the special administrators.
Our investigations to date (which remain ongoing) indicate that some client funds were held at institutions outside the MF Global group. For example, this will include funds controlled by exchanges at which business is or was transacted by clients, which will be released after all open trades/positions are closed and reconciled. We are actively working to secure the release of these funds from these institutions, from which distributions to clients can be made. As of today’s date, although the majority of these funds still remain to be collected, good progress is being made to accelerate this process.
The ultimate return of client money to clients will be dependent on the special administrators establishing the quantum of the claims against funds held in designated client money accounts (“the segregated client money pool”)and the non-segregated monies. Upon the failure of a regulated firm, under the FSA’s Client Money Distribution Rules (CASS 7A) all segregated client monies must be ‘pooled’ together and distributed to clients in accordance with those rules (please refer to the website detailed below for further information). Arrangements for distributions to clients will not be finalised until all client risk positions have been liquidated or transferred and all claims against have been validated; however, we are discussing with the FSA and other bodies whether it would be feasible to make an interim distribution before all claims are finalised, but that is still likely to be some time away.
I have provided security or collateral (segregated ‘client assets’) to MFG UK. Why can’t they be returned immediately?
We and the MFG UK staff are actively working to reconcile holdings and accounts in order to enable segregated client assets to be returned as soon as practicable, which, again, is one of our formal objectives in the special administration process.
The return of a client‘s assets will not be finalised until the associated client risk positions have been liquidated or transferred and claims have been validated. Client assets are not subject to the ‘pooling’ arrangements which apply to client money. Therefore, it is possible that client assets may be returned before the distribution of client money, possibly by means of setting a bar date to coordinate the submission of claims.
When might distributions be made?
Returning client assets and paying distributions of client money to creditors is and will remain a key focus of the special administrators. Indeed these aims are enshrined in the special administration objectives.
However, the identification, collection and reconciliation of client money, client assets and MFG UK’s assets is a complex process. While this work is underway, the special administrators will develop their strategy for the best way to return client assets and make distributions, which may include interim distributions depending on the circumstances for clients.
Further information to assist clients is available on the website www.kpmg.co.uk/mfglobaluk, including an explanation of the status of client money and client assets which have been segregated from other funds of MFG UK, answers to other frequently asked questions and a summary of the position regarding MFG UK generally.
Richard Heis, Joint special administrator
MF Global UK Limited in special administration
Richard Heis, Michael Robert Pink and Richard Dixon Fleming were appointed as joint special administrators of MF Global UK Limited and joint administrators of MF Global UK Services Limited.
The affairs, business and property of MF Global UK Limited are being managed by the joint special administrators who contract as agents of MF Global UK Limited without personal liability. The affairs, business and property of MF Global UK Services Limited are being managed by the joint administrators who contract as agents of MF Global UK Services Limited without personal liability.
Richard Heis and Michael Robert Pink are authorised to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. Richard Dixon Fleming is authorised to act as an insolvency practitioner by the Insolvency Practitioners Association.
MF Global UK Limited is authorised and regulated by the Financial Services Authority. FSA reference number 106052. Registered in England No. 01600658. Registered Office: 5 Churchill Place, Canary Wharf, London, E14 5HU. VAT No. 911 4146 61.
While every reasonable effort is made to ensure that the information provided on the pages of this website concerning MF Global UK Limited (in Special Administration) and its Joint Special Administrators, MF Global Overseas Limited (in Administration), MF Global UK Services Limited (in Administration) and MF Global Finance Europe Limited (in Administration) and their respective administrators (together the "MFG UK Estate") is accurate, no guarantees for the currency or accuracy of the website or information therein are made. The pages of this website concerning the MFG UK Estate and related material (or third party information), is provided ‘as is’. It is provided without any representation or endorsement made and without warranty of any kind, whether express or implied.
Please be aware that the MFG UK Estate and KPMG LLP, hereby exclude all liability for any claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the use of this website or the information, content or materials included on this website, including without limitation, indirect or consequential loss or damage, loss of actual or anticipated profits, loss of revenue, loss of business, loss of opportunity, loss of anticipated savings, loss of goodwill or loss of reputation. Nothing in this disclaimer excludes or limits the Joint Special Administrators', the Joint Administrators' or MFG UK Estate's liability for fraud or fraudulent misrepresentation or any liability which may not be limited or excluded by law.
The use of this website and any dispute or claim arising out of or in connection with this website (including non-contractual disputes or claims) is governed by English law and you irrevocably submit to the exclusive jurisdiction of the English courts.
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.