CME offers $300M to help unfreeze MF Global funds

[November 12, 2011]  NEW YORK (AP) -- A futures exchange that handled trades by failed broker MF Global said Friday that it will cover as much as $300 million to help speed the release of funds frozen since the firm filed for bankruptcy protection.

CME Group's announcement that it will provide a "financial guarantee" to the trustee overseeing the liquidation of the brokerage unit of MF Global followed the trustee's disclosure that he fired all of the unit's 1,066 employees.

CME said it was providing the funds to give the trustee "greater latitude" to distribute $4 billion in customer funds. The funds were frozen by a bankruptcy judge as he evaluates competing claims for the money. MF Global is facing a legally complicated liquidation. Some $600 million of customer funds is missing.

MF Global collapsed after making a disastrous bet on European debt. The company traded derivatives contracts whose value was based on the value of an underlying asset, like interest rates, oil prices or currency rates. It filed for bankruptcy protection on Oct. 31.

MF Global was one of the biggest players in the derivatives market. Regulators are investigating whether the firm used money from clients' accounts as its own financial condition worsened. That would be a violation of securities rules.

The company has already transferred $1.5 billion in funds from 17,000 customer accounts to other derivatives and commodities merchants, the trustee said. Its parent company, MF Global Holdings Ltd., is involved in separate insolvency proceedings, he said. Some of the remaining money is cash that customers deposited with MF Global to allow them to trade derivatives. Big derivatives clearinghouse IntercontinentalExchange Inc. has asked that that money be returned immediately.

CME said its "financial guarantee" would kick in if the trustee found it had distributed more money than allowed in a final accounting of the bankruptcy. It would cover the trustee up to $250 million. Another $50 million would go directly to CME customers who are missing money.

"We look forward to seeing the details of the CME proposal and hope it might help use as we devise an expedited claims process," said Kent Jarrell, a spokesman for the court-appointed trustee.

Earlier Friday, James W. Giddens, the trustee in the case, said in a statement that he cut MF Global workers in accordance with a bankruptcy court mandate. Between 150 and 200 former employees are being re-hired to assist with the liquidation and court proceedings.

"These people were chosen because they had special skills and expertise needed for the company wind down," said Jarrell, the trustee spokesman.

MF Global did not immediately return a call seeking comment. It said in a statement that all the employees were notified of their termination Friday. The company said it is working to vacate its headquarters in New York as soon as possible and will close the facility. It said it would rent cheaper office space to house the small group of employees working on the liquidation.

[Associated Press; By CHRISTOPHER LEONARD]

AP Business Writer Bernard Condon contributed.

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