To answer this question, let us first clarify what the Trustee of MFGI is proposing. Based on a review of publicly available information, the PLs understand that:
i. MFGI has identified a population of clients that had no open positions as at 31 October 2011. This means that when the business in New York filed for bankruptcy protection, these clients held only cash in their accounts, and had no exposure to market volatility or operational failures as thousands of clients' positions were liquidated or transferred.
ii. Applying the relevant SIPA legislation in relation to the pooling of clients' assets, MFGI appears to have determined that it holds sufficient funds to make an interim distribution to this particular group of clients. This distribution has been approved by the US Bankruptcy Court.
iii. The amount to be paid to these 'cash only' clients represents 60% of the balance of cash held in their accounts at 31 October 2011.
iv. Furthermore, and critically, MFGI has obtained a 'guarantee' from the CME Group, for up to US$250 million. The effect of this arrangement is to provide the Trustee with cover against circumstances in which the MFGI Trustee gives customers more cash than they are entitled to. Having this 'insurance' has aided the Trustee in reaching the view that he should seek an order from the US Bankruptcy Court to make the interim distribution.
This distribution, coming as it does in advance of the actual determination of clients' claims, is an unprecedented step designed to respond to an extraordinary set of circumstances.
The PLs understand that MFG HK will not be receiving any distribution from MFGI at this time, as MFG HK's account with MFGI did not meet the criteria established by the Trustee for this purpose – MFG HK was not a 'cash only' account as at 31 October 2011.
So, can the PLs do something similar in Hong Kong?
In order to make an interim distribution without having the benefit of the sort of guarantee provided to MFGI's Trustee by the CME Group, the PLs need a high degree of certainty that we would not be returning money to clients that are not entitled to those funds, and, if that situation did occur, that the funds could be recovered. This might be achieved by clients providing an undertaking / indemnity to return any funds that it is subsequently determined that they should not have received. To achieve this certainty, we must review each client's position, not only in relation to their dealings with MFG HK, but also the client's net closed out position with overseas MFG Affiliates and/or third party brokers. The PLs have not yet received sufficient information to determine these issues.
The PLs will need to satisfy both the SFC and the Hong Kong Court that any proposed distribution complies with the legal and regulatory framework, and that it is in the interests of all clients. The PLs are examining this situation from every angle to try and get to the position where an early distribution of clients' funds can be made.