Global bid to contain damage of bankrupt broker

Regulators and administrators around the world are engaged in frantic efforts to close trading positions held by the bankrupt brokerage firm MF Global, amid confusion over whether the company improperly dipped into customer accounts to fund the disastrous eurozone bets that brought it down.

The CME Group, which runs the Chicago Mercantile Exchange where MF Global did much of its derivatives trading, said it had determined that the company failed to properly segregate client funds.

Regulatory sources indicated that as much as US$700 million ($881 million) was not yet accounted for.

Meanwhile, the administrators appointed to wind down MF Global's operations in London spent yesterday closing out billions of dollars of trading positions.

The collapse of MF Global, which was run by former Goldman Sachs chief executive and New Jersey Governor Jon Corzine, has sown chaos and confusion in some parts of the derivatives markets where it was most active.

At one point, trading in grain futures and options had to be suspended in Australia, where MF Global was one of the biggest players in the market for agriculture futures. The volume of oil and gold trading yesterday was less than half the normal level.

MF's 2900 employees remain in limbo. Most are likely to lose their jobs. Corzine fought all weekend to sign a deal to sell the company to a US firm called Interactive Brokers, but the deal collapsed at 5am on Monday as accounting problems came to light.

MF Global filed for Chapter 11 bankruptcy protection on Monday, with its subsidiaries around the world also falling into bankruptcy or administration. Client accounts remain frozen in many countries, causing difficulties for some traders, though there was no early sign that these problems would cause the kind of fallout that followed the collapse of Lehman Brothers in 2008.

KPMG's Richard Fleming, one of three administrators appointed in the UK, said he was confident clients would see their money again.

"Our strategy is where we have clients whose position is reconciled, and are due funds, then that money will flow," he added.

Some financial firms, though, did suffer share price falls because of their perceived links with the collapsed broker. Shares in Jeffries, a US investment bank, fell 10 per cent on Monday. It was forced to state that it had not held on to more than a small amount of the junk bond that it underwrote for MF Global in the summer.

Yesterday, its shares fell by a further 9 per cent and it said that it did not have the same kind of exposure to eurozone sovereign debt as MF Global.

MF Global made a US$6 billion bet on eurozone bonds in the expectation that a resolution of the debt crisis would send prices soaring.

But its customers and trading partners fled as fears grew that the company might collapse. It took less than a week for the crisis of confidence to bring down the firm.

- Independent