Transfers of client accounts from bankrupt futures brokerage MF Global Holdings to new brokers may cause some market volatility next week due to possible liquidations on margin calls.
From FoxBusiness.com (bold emphasis mine)
--Ex-customers of MF Global are gaining access to frozen accounts moved to new clearing house
--Some traders fear new margin calls after the move
--Not all money backing current market positions moved with accounts
Some former customers of MF Global Inc. (MFGLQ) rushed Friday to sort through newly unfrozen funds--and awaited word on whether they will have to put up additional capital to back their market bets.
Friday, CME Group Inc. (CME) transferred about $1.45 billion in 15,000 customer accounts from MF Global's U.S. brokerage--roughly 30% of the 50,000 accounts to be moved--to new clearing firms. A group of 10 clearing firms received the bulk transfers throughout the day Friday and began contacting clients about the accounts.
For many of those new clients, the process was a nerve-wracking experience. Some said they were still unsure of when they would gain access to an active account, which is required to resume trading. Others who gained access rushed to sell some positions in order to meet what they expect will be margin calls due to bets that have turned against them over the past week.
For all open bets in the commodities markets, traders need to put up cash to back the position, known as posting margin. In order to keep holding those bets if the contract falls in value, traders are required to post additional cash with their clearing firm.
But confusion still reigns over much of the market and traders are unsure whether their new clearing firms will require them to post additional margins on their trades.
Reuters estimates that some $1 billion will need to be raised next week (bold emphasis added)
There was little sign yet of mass liquidations analysts feared may ensue as traders rush to raise up to $1 billion in additional margin with new brokers.
But with margins due Friday evening or later, forcible liquidation looming on Monday morning, and thousands of accounts still unsettled, dealers were jittery.
"It seems that without MF (Global) in there...no one wants to be held with big positions, if and when these accounts are allowed to trade. It's better to have a lighter position on, in the event that you get a move in the markets," Bill Raffety, senior analyst for futures brokerage Penson Futures in New York, said of the day's light trade in soft commodity markets.
MF Global holdings chief Jon Corzine, a former chief of Goldman Sachs and former governor of New Jersey, who resigned yesterday without his $12.1 million severance pay, made bet a huge bet in Euro debts in the belief that “Europe wouldn’t let these countries go down”, which obviously boomeranged.
Mr Corzine was apparently undone by his extreme faith in governments to deliver miracles and possibly on expectations of a MF Global bailout—both of which did not occur.The Bank of England (BoE) says that MF Global "posed too small a risk to financial stability to merit a bailout" (Bloomberg)
To add, many of major market participants, like Mr. Corzine, have been positioning based on expectations of the directions of political actions from policymakers and their possible ramifications. This validates my view of how politicized financial markets have been.
Yet our fundamental difference; Mr Corzine trusted governments too much (and was betrayed) while I am too deeply skeptical of each and every actions made by politicians and their wards.
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