The Special Administrators of MF Global UK Limited (“MFG UK”) have now distributed the majority of customer statements. As at 13 April 2012, the Special Administrators had produced statements for circa 5,200 customers which represent statements for approximately 79% of customers that were recognised as such on MFG UK’s records as at 31 October 2011.
Statements for most of those customers that have yet to receive them are likely to be produced and sent out over the course of the next few weeks. However, there are some customers whose statements are likely to take longer to produce. This is as a consequence of delays in the receipt of information required from third parties in order to produce the statements, and the complexities of producing statements at two, or in some cases three, different dates. An update on the key areas affected is provided below:
Customers who traded positions on the London Metal Exchange. Statements will start to be rolled out in batches to customers shortly, with the majority expected to have been issued by 11 May 2012.
Customers who traded positions primarily on certain US exchanges. 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.
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 continue to investigate the effect on the overall estate and individual customer accounts of these transfers. Statement production may take a great deal of time in these instances, as it is necessary to modify MFG UK systems to reflect the correct position.
Customers with securities positions who are awaiting statements. Statements are being released for certain batches of securities clients this week. Subject to a few exceptions, we expect to be in a position to release all statements by the end of April. Clients who have securities transactions that failed to settle with MFG UK will be subject to a longer delay. This is due to the Special Administrators seeking legal clarification as to the appropriate pricing of these transactions. For some of these transactions (e.g. for those jurisdictions where there is no market standard convention / mechanism to price these failed transactions in these circumstances) this may require an application to the Court to determine the appropriate pricing methodology and therefore a timeline is difficult to predict. For the clients affected by this we intend to release draft statements, subject to the settlement of the failed transactions, in the first week of May 2012.
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 claimant’s other accounts).
The Special Administrators are endeavouring to provide all customers with statements as soon as possible. If your statement has not yet been delivered, this will in no way prejudice your ability to make a valid claim against MFG UK.
The FSCS will only make payments in accordance with its rules if the value of your client and creditor claims has been agreed in full by the Special Administrators. This means that until such time as you have received your statements and proposal letter, and sign and return these to the Special Administrators, the FSCS will be unable to confirm if your claim is eligible and provide any compensation that you may be entitled to.
The Special Administrators provide the FSCS with a list of all agreed claims on a weekly basis. To date, the Special Administrators have provided to the FSCS a list of approximately 1,500 agreed claim balances. This list includes any agreed claim balances where there is a dispute over whether a claim is a client money or creditor claim.
Following the passing of the Bar Date (29 February 2012), the return of client assets will be dealt with in accordance with a Distribution Plan as required by Rule 144 of the Investment Bank Special Administration (England and Wales) Rules 2011 (the “Special Administration Rules”), which is subject to approval by the Creditors’ Committee and the Court. The Special Administration Rules prohibit the return of client assets within the three month period after the Bar Date. The Distribution Plan is currently being drafted in consultation with our legal advisers, and we hope to share a draft copy with the creditors’ committee at our next meeting scheduled for early May 2012. We will provide further updates on the Distribution Plan in due course.
The Special Administrators will be sending out statements to all those customers with client assets which are to be dealt with under the distribution plan by 30 April 2012.
The Special Administrators are currently in the process of finalising a Court Application for directions as to the appropriate valuation basis for open positions transacted under MFG UK’s Terms of Business (ie mark-to-market value as at 31 October 2011 vs actual close out value). We will provide further updates on this Application in due course.
This is one of the most time-consuming issues we are currently having to address. We have received approximately 1,200 claims to date (over 25 % of total claims) where a claimant has submitted a claim on the basis they were classified as segregated clients whereas MFG UK’s systems classified them as a non-segregated client as at 31 October 2011.
The recent Lehman Supreme Court ruling has determined that the client money pool should be distributed to all clients in accordance with their objective contractual entitlement to have client money segregated for them as at the date of pooling, being 31 October 2011.
The Special Administrators have, therefore, been analysing information provided to date from claimants in order to determine whether or not they are ‘clients’ entitled to share in the client money pool and have identified a number of common themes that are being explored with their legal advisors. These include understanding the contractual entitlement to “client” status (ie. segregated status) arising from the following:
- Incorrect classification of clients as non-retail clients.
- Efforts to change the classification of a customer's account from non-segregated to segregated in the days immediately prior to the Special Administration.
- The application of the Absolute Title Transfer provision (Clause 11 of MFG UK’s Terms of Business) in relation to assets passed to MFG UK.
Further communications will be sent to all claimants that are asserting that they should have been classified as segregated within the next two weeks. Clearly, this issue is of concern to the 1,200 or so claimants in this category, but also to the other clients and creditors too, as the ultimate result in respect of these 1,200 customers will impact both the client money pool and the unsecured creditor distributions. This has led to a high volume of general enquiries and complaints being received, which our resources are having to address; unfortunately, until the legal analysis is completed there are few answers we can give. The answers to some of the areas we are considering are likely only to be resolved through applications to the Court.
For the avoidance of doubt if a claimant has submitted a client claim form to the Special Administrators and has ticked the box on the form to allow the claim to be treated as a claim for distribution purposes, and the claim is subsequently determined to be a creditor claim, the Special Administrators will regard the client claim form as the formal proof of debt for the claimant’s creditor claim in the special administration of MFG UK. There is no need for a claimant to submit a separate creditor claim form.
In these circumstances, the Special Administrators will regard the date on which the client claim form was received to also be the date on which the creditor claim form was received. For example, if a client claim form was submitted on 20 March 2012 and it was subsequently determined on the 10 May 2012 to be a creditor claim, the Special Administrators will consider the date on which the creditor claim form was filed to be 20 March 2012.
The Lehman Supreme Court ruling referred to above has also left open a number of questions as to how client money is to be identified in MFG UK’s own “non-segregated” accounts where it is determined that a customer has a contractual entitlement to that client money. In particular, it remains open to question whether it is possible to trace (for the benefit of the client money pool) into other assets acquired by the MFGUK with money in its own accounts which is subsequently identified as having been client money subject to the statutory trust.
The rules for tracing have not been tested in the context of the Special Administration Rules and could potentially involve a major forensic exercise given that MFG UK operated approximately 250 “non-segregated” bank accounts. Before we consider undertaking this exercise, this issue will be considered further and may require a further application to Court for final resolution. As this is an issue which affects both the Lehman Brothers estate and ours, where appropriate, we also intend to liaise with the Lehman administrators in order to save costs for each estate and maximise efficiency.
The Special Administrators are aware of and understand wishes of clients and creditors to have an indication of the dividend prospects from the client money pool and from the general estate of MFG UK respectively. We are updating our modelling of potential outcomes for clients and creditors, which need to take into account the range of scenarios affected by the final classification of client accounts, and will report this when meaningful information is capable of being provided. Any change to the dividend rate for client money distributions and announcements on dividends to creditors will be published on this website.
MFG UK has started to process the first transfers of claims from claims trading operations. There has been a noticeable increase in this activity over the past few weeks. In terms of transfer process, MFG UK realise that parties may use their own confirmation and have accepted this so long as the Assignment Agreement is in the form provided on the website. Additionally, reductions in the per transfer fee are available to claims traders who purchase in excess of 6 separate claims in aggregate.
You may be aware that MFG UK held 2.39% of LCH.Clearnet’s issued share capital. In that context, the Special Administrators would like to note that pursuant to an agreement entered into by MFG UK and London Stock Exchange Group (“LSEG”) on 9 March 2012, LSEG has exercised its option to purchase those shares from MFG UK for €13.6 million. Under that agreement, MFG UK is also a qualifying shareholder in respect of the special dividend of €1 per share which is payable on the fulfilment of certain conditions under LSEG's offer for a majority stake in LCH.Clearnet.
The Special Administrators have been engaged in active discussions since November 2011 with the SIPA Trustee over his claim for the return of some $700m of collateral posted by MFG Inc to MFG UK. The dispute centres around whether the amounts posted should be treated as segregated or non-segregated balances.
Following an exchange of information, it has been mutually agreed that this dispute should ultimately be determined by the English Courts. We are currently preparing the relevant papers to commence the court process. Further details (to the extent not prejudicial to the case) will be posted in due course.
The Special Administrators continue to pursue the recovery of segregated client monies and house monies held by MFG Inc.