MF Global Suspended From LME Trading, CME Clearing After Bankruptcy Filing
MF Global Holdings Ltd. (MF), the holding company that filed for bankruptcy protection, was suspended from trading on the London Metal Exchange. CME Group Inc., the largest futures market, also suspended the broker-dealer unit MF Global Inc. as a clearing member.
MF Global U.K. Ltd. was excluded from LME electronic and floor trading after it was declared a defaulter by LCH.Clearnet Ltd., which clears transactions, the LME said in an e-mailed statement yesterday. The unit is one of 12 category 1 members, giving it the right to trade in the LME’s 6-meter-wide (20-foot) ring, home to London’s last open-outcry transactions.
“Clients that trade on exchanges are generally protected by the mechanisms that are there with clearinghouses and initial margins and everything else that work to protect them from major defaults,” said Jeremy Goldwyn, head of overseas business development in Asia for Sucden Financial Ltd., who has been involved with the LME for 25 years. “I don’t think we are going to see a forced mass liquidation other than any positions that MF Global themselves had. I suspect we probably have seen most of that already.”
MF Global Holdings sought bankruptcy protection yesterday, three years after the failure of Lehman Brothers Holdings Inc. which triggered the worst global recession since World War II.
LME suspended MF Global’s access to telephone trading as of 7:15 p.m. London time yesterday at LCH.Clearnet’s request, Chris Evans, head of business development at the LME, said by phone today. The company was allowed to trade by phone briefly after 6:55 p.m. to let MF Global staff transfer positions, he said.
Jeremy Skule, MF Global’s spokesman in New York, didn’t return a Bloomberg call for comment yesterday and an e-mail today.
The company was ranked first by trade volume based on cleared business on the Comex division and the New York Mercantile Exchange in the year ended March 31, the company said on its website. The firm also ranked second on CME and fourth on Liffe, it said. It was the eighth largest futures commission merchant by Aug. 31, with customer segregated accounts of $7.27 billion, according to Commodity Futures Trading Commission data.
The holding company recorded $2.87 billion worth of commodity derivative contracts as assets representing 79 percent of total derivative contracts as of June 30, the firm said in its quarterly filing to the Securities and Exchange Commission. Foreign-exchange derivatives ranked second at $436 million.
“They are big players and this certainly raises concerns in the market,” Jonathan Barratt, a managing director of Commodity Broking Services Pty, said by phone from Sydney. “We have agricultural positions with them and for now, we’ll just have to wait and see what happens.”
MF Global Securities Ltd. and MF Global Australia Ltd. were placed in administration and their trading activities were halted, said the Australian Securities & Investment Commission. ASX 24, the Australian Stock Exchange’s 24-hour trading platform, suspended grain and wool futures trading to preserve the integrity of the market, it said. NYSE Liffe, where coffee, sugar and cocoa are traded, also declared MF Global U.K. a defaulter.
Deloitte Touche Tohmatsu, administrator for the Australian companies, is working “to resolve what are complex operations in the interests of the companies’ clients and creditors,” it said. “The total process will take some time.”
MF Global is a full participant member of the Sydney exchange with agricultural-desk clients representing more than 80 percent of the volume in the three traded wool contracts, according to its website. The company’s so-called Forward Offer Board provides a way to trade domestic physical wool and it has a physical grain brokerage operation, it said.
Intercontinental Exchange Inc., owner of the world’s largest credit-default swap clearinghouse, said yesterday it has limited all trading for customers of MF Global to liquidation only and blocked brokers backed by the company from the trading floor. The Monetary Authority of Singapore directed MF Global Singapore Pte Ltd. not to take on new positions except for reductions or liquidations.
The Hong Kong Mercantile Exchange suspended and restricted the trading of MF Global Hong Kong and declared MF Global U.K., a clearing member, to be a defaulter, bourse spokeswoman Aubrey Ho said today. The exchange trades gold and silver futures.
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