A week after MF Global Holdings filed for bankruptcy protection in Manhattan, customers of the futures broker are blaming everyone including the regulators, because they still cannot get hold of their funds.  The "safeguards" that were intended to protect them are failing them. Under a bankruptcy court order, funds or collateral that are not backing futures positions cannot be transferred to another futures broker.  So, even though the world's largest futures exchange, the CME Group, started last week to transfer some 15,000 positions to other futures brokers, it must operate under certain restrictions.

One MF Global customer called the predicament "a terrible weakness in the exchanges, the industry and the regulators.  The whole system broke down."  The customer holds positions totaling between $100,000 and $500,000.

The firm, which filed on Monday, 10/31 and now faces liquidation, listed debts of $40bn and assets of $41 billion.  And, as MF Global filed for protection, it told regulators of potential 'deficiencies' in some customer accounts. The Long Wait. MF Global customers may have to wait years before they can get their money if the futures broker is sued, according to Frederick Grede, a liquidation trustee who's overseeing the bankruptcy of futures brokerage Sentinel Management Group.  He's been trying to recover $600mn of customer money from Sentinel, 4 years after the futures broker filed for bankruptcy in 2007. For now, part of the delay is in locating the customer funds.  MF Global located nearly $660mn in customer funds in a custodial account at JPMorgan Chase.  That account held about $2.2bn as of 10/31/11, including funds belonging to the firm as well as customers. Unfortunately, none of that appears to be related to the $593mn in customer funds that are still unaccounted for.  The original shortfall was thought to be $633 million.  A spokesperson for JPMorgan said the bank doesn't have any information about whether the account balances are "related in any way to the 'missing' customer funds."  The spokesperson would only confirm that, "the accounts and their balances have been and continue to be wholly transparent to MF Global, and the trustee appointed to locate customer assets. Losing Trust. Yet, while the CME continues to work with the CFTC, SIPC, and the MF Global trustee in transferring brokerage accounts and CME Clearing-held collateral to other qualified clearing firms, the regulator is losing the goodwill and trust of investors who use the exchange and expect their money to be protected. As a short-term accommodation to maintain market integrity and to provide temporary relief to customers whose accounts have been disrupted by this event, the CME has reduced the initial margin required to back futures trades. MF Global customers received more bad news last week when they were told that they could only liquidate existing positions and not add new ones.  Exchanges including CME Group and Intercontinental Exchange directed customers to the firm (MF Global) to broker the close out trades.  However, that appears easier said than done, because "it seems like they had one poor clerk handling all the orders." Actions Taken By Trustee. James Giddens, the trustee liquidating the MF Global brokerage, froze 150,000 customer accounts on 10/31, including 50,000 commodities accounts that he aims to transfer to other futures brokers.  Customers will hear from their future brokers when the transfers are made.  Transfers are expected to continue into new week.  Segregated MF Global account positions will move to 2 or more of 5 clearing members - ABN AMRO Chicago Clearing, ADM Investor Services, Dorman Trading, FC Stone, R.J. O'Brien, and Rosenthal Collins Group. For further details, go to:   [Bloomberg, 11/5/11]