MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, wasn’t forthcoming when regulators sought information on customers’ funds last weekend, according to Gary Gensler, the chairman of the U.S. Commodity Futures Trading Commission.
“Our people went in to say ‘Can you give us the documentation? Can you give us the background material?’ Because it’s one thing to have one sheet of paper with the number, it’s another to have actually the bank account numbers and the securities,” Gensler told reporters today after testifying at a Senate hearing in Washington. “That was a challenge over the course of the weekend.”
CFTC auditors went to MF Global offices starting Oct. 27 to investigate customer funds as the firm sought a buyer after reporting its biggest quarterly loss and having its credit ratings cut by Moody’s Investors Service.
“We immediately asked for the documentation. We had concerns over the weekend as the documentation was not forthcoming,” Gensler said.
Gensler said he went to sleep at about midnight on Oct. 30 after Interactive Brokers Group Inc. and MF Global verbally committed to a deal, including the transfer of customer positions.
“Our role at that time was to ensure the protection of the customers and that there was a party to guarantee the positions and the collateral and that that would be moved,” he said.
MF Global filed for bankruptcy protection on Oct. 31 after that deal collapsed and the firm told regulators of potential deficiencies in customer accounts.
Gensler said he first learned of the shortfall in customer funds when he received a call from MF Global at about 2:30 a.m. on Oct. 31. The CFTC said in a letter yesterday that the shortfall is $633 million. In remarks prepared for the Senate Permanent Subcommittee on Investigations hearing, Gensler said the CFTC would be looking for the cause of the shortfall.
Under CFTC regulations, brokerages must keep customer funds in accounts separate from the firm’s own collateral. CME Group Inc., MF Global’s designated self-regulator, said on Nov. 1 that the shortfall in segregated funds violates CME and CFTC rules. Designated self-regulators audit and monitor firms’ positions on a regular basis.
“Customer money has to be segregated at all times of the day, at every moment of the day,” Gensler said. “They’re in deficiency in their own words.”
Jeremy Skule, MF Global’s spokesman in New York, didn’t return a call or e-mail seeking comment.