Since the appointment of administrators to MF Global UK, substantial progress has been made in closing and transferring positions; dealing with defaults on the exchanges; progressing the identification of segregated client monies; negotiating with the external institutions which hold client funds for their return and – importantly - exploring the possibility of making interim payments while the colossal task of identifying and reconciling clients positions is achieved.
Richard Heis, joint special administrator and restructuring partner at KPMG, commented:
“Crucial to returning client monies is gaining control over client funds held with the banks, exchanges and clearing houses. We are starting to see the fruits of our labours and funds are starting to be released to MF Global UK. We are negotiating to ensure that client monies are returned to us as soon as possible to enable them to be distributed.
“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 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. Final distributions to clients will not be made until all client risk positions have been liquidated or transferred and all claims against have been validated; however, we are likely to make interim distributions along the way.”
The administrators have also confirmed that more than 300 MF Global UK staff will continue with the work of reconciling client monies and assets, collecting debts and other matters necessary for the successful resolution of the estate. Around half of this number will stay until the end of January, with the remainder staying until the end of April. This period is likely to be extended by several months or even years depending on progress.
Richard Heis, added: “We are very pleased that so many people have agreed to stay. This is an extremely complex process and the assistance of the MF Global UK staff will help to maximise returns for the estate and expedite the return of client assets and monies.”
Key tasks currently in progress by the administrators:
- Reconciling each client’s position is an enormous and complex task: thousands of clients and millions of transactions must be processed;
The default of the company on over thirty exchanges as of today, means that there is a very large number of accounting entries to be made to bring the books and records up to date. Whilst previously MFG UK’s systems were able to process much of this automatically through electronic links to exchanges and banks, most records must now be processed manually;
Segregated ‘client money’ accounts need to be identified as distinguished from other MFG UK monies. The majority of client funds were held at institutions outside the MF Global group. For example, this includes 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. The administrators are actively working to secure the release of these funds from these institutions;
The ultimate return of client monies is dependent on establishing the quantum of claims against funds held in designated client monies 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. Arrangements for distributions to clients will not be finalised until all claims have been made or reserved against. When this has been done the administrators will be looking to make an interim distribution; the quantum is dependent on the amount of funds gathered in;
Segregated client assets (security or collateral) are being reconciled. 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 same ‘pooling’ arrangements which apply to client money, and we expect to set a bar date shortly for all assets, with an expedited procedure for those assets where the ownerships issues are clear;
The administrators must also pay heed to 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;
The sales process for various aspects of the MF Global UK business continues apace and the administrators are in negotiations with several parties to this end. The negotiations remain confidential at this stage but details of any deals will be announced once agreed.
For all non-press queries, please email your details to:
The administrators will respond to your query as soon as possible.
Press requiring further information please contact:
Lucinda Kemeny, MHP – 020 3128 8758 / firstname.lastname@example.org
Katie Hunt, MHP – 020 3128 8794 / email@example.com
Notes to Editors:
Richard Fleming, Richard Heis and Mike Pink of KPMG LLP were appointed joint special administrators of MF Global UK Limited, a UK based broker-dealer business, and MF Global UK Services Limited, which provides employee and pension services in relation to the UK operations, at 5pm on Monday 31 October 2011. MF Global UK Limited is a wholly owned subsidiary of MF Global Europe Limited which in turn is a subsidiary of MF Global Holdings Limited, a company incorporated in Delaware, USA, which filed for chapter 11 bankruptcy protection on 31st October.
The objectives of the administration are:
- To ensure the return of client assets as soon as is reasonably practicable;
- To ensure the timely engagement with market infrastructure bodies and the Authorities pursuant to regulation 13; and
- To either rescue the Investment Bank as a going concern or wind it up in the best interests of creditors.
Progress of the administration is tracked on the dedicated KPMG web pages:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.