Fallout from MF Global Far from Over

January 3, 2012 02:32 AM
Fallout from MF Global Far from Over

Confidence in commodity markets were shaken and that uneasiness will continue in 2012


Marty Klinker, a Montana farmer and rancher, went to Washington in December looking for answers. He knew he wouldn’t find the nearly $500,000 he couldn’t access when MF Global filed for bankruptcy on Halloween 2011.

Klinker’s money was only a fraction of the $7 billion that was tied up and inaccessible to the customers who cleared trades through the now-defunct brokerage giant. In mid-December, Klinker and other MF Global customers received 72% of their money. The remaining 28% remains in limbo and there is no indication of when that money will be available to them, if at all.

This is the eighth-largest bankruptcy filing in U.S. history and it has shaken the markets late this year, and that uneasiness will likely continue into 2012, says Thomas Grisafi, an independent commodity trader and CEO of Indiana Grain Co. "On a scale of 1-10, this is a 9 in terms of impact on the market. Open interest and volume have gone down since the filing and a lot of local traders have been sidelined because of this."

Furthermore, says Grisafi, anyone who has ever sold a brokerage service to somebody could always offer assurance that money in a trading account is safe. "They can’t say that anymore."

The full impact of this will be sorted out in the coming months, says Scott Harms, an analyst with Archer Financial, a division of ADM. Volume typically declines late in the year, he says, but this year it has been accentuated.

Early in 2012, he believes a lot of money will be shifted around as farmers and other hedgers move money to new brokerages. How much of that money remains in the market remains a question. Beyond the $500,000 Klinker could not access, that was his biggest concern.

In a Letter to the Editor of AgWeb, Klinker wrote: "The question the marketplace would have to ask is; ‘Do I feel confident in buying that depressed position (thus stopping the free fall) when the free fall has been caused by the lack of security on segregated accounts, causing hedgers to liquidate positions due to lack of funds? OR, should I simply get all of my money out of the market before there is a melt down and I also lose all of my money held at my FCM (futures clearing merchant)?’"

That is a concern shared by Harms. "There is no question this has caused skepticism of the markets. The safety people felt with the markets will never be there. It’s important that people are made whole with this."

On the political front, there are many unknowns now as well. Klinker attended the 2011 Farm Journal Forum in Washington, D.C. searching for what he called "a political will" to bring changes to the way FCMs handled customer accounts.

These are supposed to be segregated accounts. Unfortunately, however, ranking Democrat on the House Agriculture Committee Collin Peterson says the rules have been softened over the years that actually allow FCMs to use customer funds. At the Farm Journal Forum, Peterson vowed to get those rules reverted back to the way they were originally set up in 1968.

Dialing back those rules anytime soon will be tough duty, says Jim Wiesemeyer, a policy analyst with Informa Economics. With the Presidential primary season taking up the attention of politicians through the spring months and the focus on the general elections coming later in the year, getting anything through Congress this year will be difficult.

He believes changes could come with a new Congress in 2013, but that will depend on the outcome of the Presidential and Congressional elections.


Editor’s Note: Here at AgWeb.com, we tried to identify what stories in 2011 will continue be top of mind in 2012. You’ll see one of these stories each week day until Jan. 3. Send any thoughts or comments on the stories to editors@agweb.com.

Here are the other top stories:



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Spell Check

12/31/2011 05:29 AM

  why do the players in this game expect to get all their money back? it is like a football player being upset that his knee gets destroyed and then complaining about the part of the game that allowed that to happen. this is simply what you can get when you are playing a game with people who simple use your money to make more money. do yall think this is some kind of pure and honest game? i believe that if you want to play games with money in order to satisfy your greed by making your little mountain of money bigger and bigger then you deserve whatever you get. do yall think it is right and fair to simply make money out of thin air??

12/31/2011 06:07 AM

  People are upset because "by law" the funds that are in those accounts are supposed to be kept completely separate from the companies other accounts. You pay a fee to use their services but they are not allowed to invest your money in other markets like a bank would. That is supposed to provide security for the traders and stability for the market. If the laws are not changed people will not invest as much money and the markets will weaken.

12/31/2011 06:41 AM

  The way the indusrty is regualted needs to be addressed there is no transparcy in the investigation of a broker if you have a complaint of his actions your not alowed to see the brokers response to the Nfa (the regulating athority ) by claiming that that information is non plublic and your not entitled to see it ( the claiming vitim??) it appears to bea very in house protect the broker stituation i think most farmers do not know that the brokers are not regul;ated by the state only at first level by the own organization the NFA Doug L Bell suffered a lage loss by Broker not following industry rules and he beliees failure of the NFA to enforce said rules


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