The Special Administrators of MF Global UK Limited (“MFG UK”) will have distributed the majority of customer statements by the close of business on 30 March 2012. As of 30 March 2012, the Special Administrators will have produced statements for circa 5,000 customers which represent statements for approximately 75% of customers that were recognised on MFG UK’s records as at 31 October 2011.
Statements for customers with certain categories of accounts are likely to be produced in the weeks following 30 March 2012. This is as a result of logistic complexities in their production and the availability of information required from third parties by the Special Administrators to produce the statements. These include approximately 700 customer statements in the following categories:
(1) Customers who traded positions on the London Metal Exchange. Due to the complexity of the LME close-out process, the Special Administrators currently estimate that these statements will become available in April and plan to roll out statements to customers as they become available. The delay in processing these statements relates to a number of issues including (i) the inability of MFG UK to settle transactions on 31 October 2011 after LCH.Clearnet applied its Default Rules, (ii) lack of reconciliation between LCH.Clearnet and the LME prior to February 2012 and (iii) adjusting for the impact of the rolling and transfer of customer positions performed by LCH.Clearnet during its default management process on customer account balances. Part of this complexity stems from LCH Clearnet and LME applying their default rules in respect of different dates.
(2) Customers who traded positions on certain US exchanges primarily. The Special Administrators currently do not have an estimate for the timing of these statements, as they are reliant on the receipt of certain information from MF Global Inc. The Special Administrators are in dialogue with MF Global Inc and the US exchanges to obtain the requisite information.
(3) Customers who had balances transferred by exchanges at what appear to be rates other than the prevailing market rates at the date of transfer. The Special Administrators are currently investigating the effect on the overall estate and individual customer accounts of these transfers.
The above list of issues is not exhaustive. There are a number of individual account circumstances that are currently being investigated (e.g. where there may be a legal right of set off impacting a claimants other accounts and certain securities accounts).
The Special Administrators are endeavouring to provide all customers with statements as soon as possible. If your statement is delivered post 30 March 2012, this will in no way prejudice your ability to make a valid claim against MFG UK.
In the majority of cases final statements are being sent to clients together with a covering letter which sets out:
- An explanation of the basis of preparation of the client’s statement of account. Please note that in some cases where liquidations of open positions occurred after 31 October 2011, the client will receive two statements:
One in which the balance reflects the value of open positions at their respective market values as at close of business on 31 October 2011; and
The other which provides a final balance which reflects the value of the positions once closed out.
- A summary of the balance due to the client as at 31 October 2011 (and where relevant after all positions are closed out), which the Special Administrators are prepared to agree as the client’s claim against MF Global UK (limited to the amount that the client receives) provided that:
The client agrees the balance represents the entire claim against MF Global UK; and
The client enters into a settlement agreement, which among other things provides an indemnity to MF Global UK and the Special Administrators plus an obligation to repay any amounts received by the client in excess of the client money entitlement.
In some cases, where the segregated status of a claim has not been agreed with the customer, customers will be asked to agree the balance of their claims only and not the segregated status. This will allow the FSCS to make compensation payments to those customers who are considered to be eligible to receive payment.
Where transactions occurred after 31 October 2011 (ie liquidations of open positions), the client will be asked to agree the balance as at 31 October 2011 and also to agree the final balance after all subsequent transactions are accounted for. The reason why two values have been provided is because there are currently legal uncertainties surrounding the appropriate valuation method in respect of a client's client money claim.
The question is whether the claim should be valued with reference to the value of open positions, marked to market as at the date of the primary pooling event (a term defined in the FSA’s Handbook and which is in this case 31 October 2011), or with reference to the value of the positions once they were closed out. This issue is one which the Joint Administrators intend to invite the Court to determine. The Special Administrators would like to make interim distributions in respect of client money as quickly as possible. Accordingly, provided the client agrees to both balances indicated in the summary, interim distributions to clients will be based on the lower of these two balances.
Upon receipt of the client’s agreement of the final balance and the signed settlement agreement, the claim will rank for distribution out of the segregated client money pool or the general assets of MF Global, as appropriate. Please note that the Special Administrators are unable to make an interim dividend payment until they have also received a signed copy of the Bank Confirmation Form.