United Kingdom


  • Service: Advisory, Transactions & Restructuring
  • Industry: Financial Services
  • Type: Business and industry issue
  • Date: 30/11/2011

MF Global UK - What does segregation mean in practice? 

What does segregation mean in practice for the client money balance that I have with MF Global?


The FSA’s Client Money Distribution rules (CASS 7A) address the timely return of client money to a client in the event of the failure of a firm (‘primary pooling event’) or third party at which the firm holds client money (‘secondary pooling event’).  (These terms are explained further below)


These rules effectively mean that all monies held in segregated client money accounts have to be pooled for the benefit of all parties with valid entitlements to that segregated ‘pool’; they are not segregated simply on a client by client basis. 


The timeliness and quantum of distributions to those confirmed as having valid entitlements is therefore impacted by the time required to identify the quantum of all eligible client money claims.  Moreover, the costs related to this distribution process need to be attributed before client money can be paid to relevant clients.  


In relation to these specific points:


  • 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 - this is in accordance with one of our formal objectives in the special administration process.
  • We are discussing with the FSA and other bodies whether it would be feasible to make an interim distribution before all claims are finalised.


We provide more detail on the FSA’s Client Money Rules below:


Segregation of Client Money:


Client money is generally required to be held with a bank in a ‘general client bank account’, a ‘designated client bank account’ or a ‘designated client fund account’.  The firm may also be required to transfer client money to a third party such as an exchange, a clearing house or an OTC counterparty to meet a client’s obligation to provide collateral for a client transaction.  Client money that has been transferred to a third party is also required to be segregated from the firm’s own money by the third party. 


Where a firm holds client money in a general client account for its clients as a common pool of money, those particular clients do not have a claim against a specific sum in a specific account, they only have a claim to the client money in general.


Where a firm holds client money in a designated client account or a designated client fund account for those clients that requested their client money be part of a specific pool of money, those particular clients will have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs.


A primary pooling event such as the special administration of MFG UK triggers a notional pooling of all the client money, in every type of client money account held, and the obligation to distribute it.


Pooling and Distribution:


If a primary pooling event occurs:


  • Client money held in each client money account is treated as pooled
  • the firm must distribute that client money in accordance with the FSA’s client asset sourcebook CASS’ chapter 7A, a copy of which can be found on the FSA’s website.  In summary, each client receives a sum which is rateable to their client money entitlement.  This entitlement is to be calculated as follows:


(1) When, in respect of a client, there is a positive individual client balance and a negative client equity balance, the credit must be offset against the debit reducing the individual client balance for that client.

(2)  When, in respect of a client, there is a negative individual client balance and a positive client equity balance, the credit must be offset against the debit reducing the client equity balance for that client.


In practice distribution (in whole or in part) can only occur once the firm (under the control of its administrator/special administrator/liquidator) has gained effective control of the client monies – following an insolvency of the firm such monies are typically retained by the relevant bank or third party collateral-holder referred to above until they are satisfied that (i) the funds are segregated; and (ii) there are no other claims to be off-set against them.


If a client is not able to be repaid his relevant claim in full from the segregated pool that client will have a claim for any shortfall against the assets of the firm’s own estate as an ordinary unsecured creditor of that firm.




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.
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