As former MF Global Holdings Ltd. CEO Jon Corzine prepared to
testify last week before a U.S. congressional committee about
missing customer money, independent broker Rosenthal Collins
) attempted to restore customer confidence in the futures market
by publishing exactly where it is holding its clients'
On its Web site home page under the question "Do you know how
your broker invests customer funds?" the Chicago-based futures
commission merchant (FCM) on Tuesday placed a link to a pie chart
outlining specifically where it is holding the funds that
customers depend on to trade and run their businesses.
The chart shows the broker's investment holdings for customer
funds as of Nov. 30, with the bulk of the money in overnight
investments collateralized by U.S. Treasury securities and the
second-largest portion held in cash deposits at clearinghouses
Fallout from the collapse of MF Global, a brokerage firm that
filed for bankruptcy protection on Oct. 31 after $6.3 billion in
wrong-way bets on European debt, has shattered trust in the
futures-trading industry, where customer funds are not insured as
they are in the equities-trading world.
Before the U.S. House of Representatives Agriculture Committee
on Thursday, Corzine apologized to customers, employees, and
investors who have suffered because of the brokerage firm's
collapse, but said he does not know where the missing customer
money is located.
"Customers are so devastated by what happened that anything
that will bring back confidence and encourage transparency, we
wanted to do," Leslie Rosenthal, managing partner of RCG, told
Reuters. He said he wanted to show customers the firm didn't have
any holdings in European debt, which sunk MF Global.
"This is our effort to let our customers know we engage in a
much more conservative way of investing their money."
Customer Money 'Sacorsanct'
The missing money in MF Global's segregated customer accounts
could be as high as $1.2 billion, according to the company's
bankruptcy trustee, an unprecedented breach of industry rules.
Regulators believe it is less than that.
John Werner, CEO of the White Commercial Corp., an FCM
headquartered in Stuart, Fla., that holds as much as $200 million
of customer funds on account with RCG, said his customers had
been calling to ask how safe their money was.
"I thought that it was very prudent for them to put how they
are carrying the customer segregated funds in the timeframe that
they did after MF Global came apart," said Werner, an RCG client
since 1990 who provides risk-management services for 185 grain
elevator facilities around the U.S.
"It's assuaged customer concerns."
Other FCMs have taken a more personal approach. CEO Sean
O'Connor of INTL FCStone said the firm has sent letters to
customers, but since the company is publicly traded, it will
address this issue more specifically in its annual filing next
"We have provided customers with a standard letter clearly
explaining how [segregated] funds work and of course have been
happy to address any specific requests or questions."
The firm invests clients' money in short-term Treasury bills
and approved money-market funds, O'Connor added. "We do not even
extend tenures into longer-term treasuries or agencies."
Industry Still Feeling Effects
MF Global's bankruptcy filing has further crippled an industry
already battered by years of diminishing income.
The surge in electronic-trading volume in the last decade has
robbed brokers of commissions and persistently low interest rates
have sapped income.
Add to the mix pending U.S. government regulations that
threaten to curb trading, and the business model is not faring so
"Profitability is gone. It's affecting the whole futures
industry. People are not trading as much as they used to. Funds,
utilities, producers, they're all being affected," said Edward
Kennedy, senior vice president with Hencorp Futures in Miami.
"They don't know how many positions they can put on, what the
limit is with the new regulations."
(Reporting By Jeanine Prezioso. Additional reporting by
Jeffery Kerr. Editing By Alden Bentley)