Citigroup Inc. (C), the third-biggest U.S. bank, said it will show trading clients how the lender is managing their funds as regulators probe missing customer cash at MF Global Holdings Ltd. (MFGLQ) and Peregrine Financial Group Inc.
Customers using New York-based Citigroup to buy and sell futures and over-the-counter derivative products can now see how much client funds the bank holds, Christopher Perkins, global head of OTC clearing, said today in a phone interview. Clients can use a Citigroup website to monitor the composition of the funds and where they’re being held, he said.
Citigroup is responding to allegations surrounding MF Global and Peregrine, which filed for bankruptcy after shortfalls in client accounts. This has raised scrutiny of how regulators ensure that banks and brokerages separate and protect customer cash when trading in futures.
“It’s almost impossible for regulators to come up with rules that prevent malfeasance and fraud,” Perkins said. “You can come up with the best rules in the world but if people violate them, you’ve still got a problem. The best way to mitigate these kinds of threats to client money would be through enhanced transparency.”
Customers of Citigroup’s futures-trading business were unable to see this information until now, Perkins said. Citigroup, run by Chief Executive Officer Vikram Pandit, had about $9 billion in segregated customer assets at the end of April, the sixth-largest among U.S. futures brokerages, according to the U.S. Commodity Futures Trading Commission.
Futures are agreements to buy or sell assets at a set price and date. Investors often trade the products as bets on price fluctuations.
The CFTC sued futures brokerage Peregrine this week, alleging a $200 million shortfall in client funds. The Cedar Falls, Iowa-based firm filed for bankruptcy yesterday in Chicago. The Federal Bureau of Investigation is probing the company in the wake of what police said was a suicide attempt by founder Russell Wasendorf Sr.
The parent company of MF Global, which had been run by former Goldman Sachs Group Inc. co-CEO and U.S. Senator Jon Corzine, filed the eighth-largest U.S. bankruptcy on Oct. 31 with debt of almost $40 billion after making $6.3 billion in bets on sovereign debt. The failure left a $1.6 billion shortfall in what should have been protected customer accounts. The brokerage’s trustee James Giddens found last month that the New York-based firm used customer funds to pay margin calls tied to the bets.
“It was spurred on by client demand following recent events,” Perkins said. “It was a no brainer.”