Giddens told commodities customers he can't let them have any more of their collateral until a probe into the "complex cash movements" at the defunct brokerage establishes the size of any shortfall.
Just Customers
"We didn't think we were just customers," said David Rosen, a 32-year-old energy broker who works at the New York Mercantile Exchange. "We're the ones in the pits providing liquidity so everyone around the world can trade these products."
Rosen is organizing exchange members to consider their legal options, and said his group will look to recover money from the bankrupt estate before considering who else they might be able to sue.
The CME said in court papers it has $2.5 billion of MF Global's total $5.45 billion in customer segregated funds on deposit. The effect of frozen collateral has already been felt; volume for agricultural futures contracts traded on the CME and CBOT was 705,273 on Oct. 31, less than the 867,591 30-day average, and down 71,106 from the prior day.
"Though many of the decisions going forward are beyond our control we are working very closely with the regulators and the trustee to represent our customers' interests," said Michael Shore, a CME spokesman.
The CME announced today that it would provide a $250 million guarantee to the trustee to let them make an interim distribution to customers now, and would give another $50 million to the trustee if there's a shortfall at the end of the trustee's distribution process.
A stampede to pull funds out of collateral accounts or a boycott of the exchanges could ripple through the markets, affecting farmers as well as hedge funds, said Ashmead Pringle, president of Grain Service Corp., an introducing broker for grain elevator operators who are looking to hedge against price fluctuations with futures contracts. Grain Service Corp. has filed court papers seeking information about MF Global's liquidation on behalf of its clients.
James L. Koutoulas, chief executive of Typhon Capital Management in Chicago, said his fund has lost one client who wasn't a customer of MF Global, and most others are in limbo because their funds -- totaling $55 million -- are tied up. Koutoulas, a lawyer, is working with Northwestern University law professor J. Samuel Tenenbaum on behalf of any MF Global clients and hopes to put together a group that can seek representation on the five-person creditors committee along with JPMorgan Chase & Co., Wilmington Trust and Elliott Management Corp., all of whom have interests are averse to those of customers.
"If there's a dispute as to whether it's house or client money and five people are saying it's the house's money, we need someone there to say 'No, wait. Maybe it's the client's money and our money is at risk," Koutoulas said.