Corzine ‘never intended to break rules' as MF Global CEO

WASHINGTON, Dec. 8- What led to the misuse of MF Global customer funds is unknown, largely due to the enormous number of transactions made in the hours before the firm’s collapse, said Former MF Global CEO Jon Corzine when he testified before the House Committee on Agriculture today.

“I never intended to break any rules,” he said in response to questions from Chairman Frank Lucas (R-Okla.). “I am not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds. I can only say I know I had no intention to ever authorize the transfer of segregate moneys.”

Farmers and ranchers across the country used MF Global to make commodity market trades as financial hedges intended to protect them against volatile market prices. An estimated $1.2 billion in customer funds went missing after the firm’s collapse.

“I think about this every day,” Corzine said. “I could not be more regretful of the distress we’re bringing into people’s lives.

Corzine departed MF Global on Nov. 3 after the firm declared bankruptcy on Oct. 31. He told the Committee he did not become aware of un-reconciled customer accounts until the evening of Oct. 30.

“I was stunned when told MF Global could not account for millions of clients’ money,” he said. “I simply do not know where the money is.”

Executive Chairman of the CME Group Inc., Terrence Duffy, said that MF Global reported stable segregated accounts until reports on Monday, October 31 indicated otherwise.

Investigators described the state of the firm’s records during the last days before the bankruptcy as “a mess.” Corzine cited the unusually high number of transactions taking place during the last few hours before Oct. 31.

"It's my understanding that our books and records were reflecting the chaos that occurred in the last two or three days as the firm was under severe pressure," he said.  "It's clear that in the last hours there were many, many more transactions than before."

During the hearing, Corzine discussed the firm’s choice to invest in European sovereign debt. According to Corzine’s testimony, he met with MF Global’s senior traders in 2010 to discuss ways to improve the company’s profitability. One of those ways was to purchase European sovereign debt using “repurchase transactions to maturity,” or RTMs, which he said would reduce finance and market risk at a time when the spread on European sovereign debt securities appeared favorable.

“Through these discussions, I became an advocate of purchasing European sovereign debt using RTMs,” he said. “At the time that MF Global entered into the transactions, I believed that its investments in short-term European debt securities were prudent.”

Several members characterized the firm’s investment in sovereign debt as irresponsible. Ranking Member Collin Peterson (D-Minn.) questioned the MF Global betting strategies. “They just seem pretty risky,” he said.

Corzine emphasized that during his tenure at MF Global, the firm actually reduced leverage from 37.3 to 30.

MF Global existed jointly as a futures commission merchant (FCM) and a broker-dealer firm before the bankruptcy. The broker-dealer firm of MF Global placed the investments in sovereign debt. Corzine stated repeatedly during the hearing that he has no recollection of ever authorizing customer funds from the FCM to be used in the sovereign debt investments.

Commodity Futures Trading Commission (CFTC) Commissioner Jill Sommers said during her earlier testimony that this investigation would result in policy changes and “lessons learned.”

“We might consider that operating as a combined broker-dealer and FCM should not exist,” said Vice Chairman of the Financial Industry Regulatory Authority, Stephen Luparello.

“We need to seriously examine whether we should put these segregated accounts into a third party,” Peterson said. “Hopefully the committee can spend some time looking at this and working with people to determine what a solution should be.”

A court-appointed trustee is attempting to transfer and distribute $2.1 billion in MF Global funds frozen by the bankruptcy. A New York bankruptcy judge is expected to consider the transfer Friday.

“Many firms still will have significant amounts of margin funds and excess cash tied up with the trustee-- or missing,” said Central Missouri Agri-Service manager, John Fletcher, on behalf of the National Grain and Feed Association. “Even at a relatively small firm like Central Missouri Agri-Service, we are trying to manage a $600,000 deficit in the value of our account.”

The CFTC adopted a rule earlier this week that eliminates foreign sovereign debt as a permitted investment by an FCM. The rule updates regulation 1.25. However, Corzine and Commissioner Jill Sommers testified that the regulation 1.25 never made customer funds available for sovereign debt investments, except if the customer made deposits in foreign currency and authorized an amount.

CFTC initially proposed the update to the regulation in October 2010, but deferred it after multiple financial firms, including MF Global, objected the change as too costly.

Whether this rule would have prevented the consequences of MF Global’s collapse is not certain. The investments MF Global made in Europe were not made by its FCM, but by the MF Global broker-dealer firm. The location of the misplaced customer funds, as well as the timing, is still unknown.

“My impression is that in the chaos of the last few hours and days, either a miscalculation occurred or money that was expected to come in did not.” Corzine said.

The Dodd-Frank Act, enacted to enhance regulatory oversight of large financial institutions, is in the stages of final rule approval. House Agriculture Committee members debated during the past few months whether these rules are being enacted too quickly. Some are using MF Global’s failure and the recent bankruptcies of Lehman Brothers and Refco as examples that these new regulations are urgent.

“There have to be some rules in place that limit high risk and give the farmers and ranchers confidence in these markets,” said Rep. Joe Courtney (D-Ct.). “Our job here is to try to figure out the right way to balance rules to prevent these events form occurring again. I think implementing these rules can create a structure of stability in our economy.”

FSDC to firm up framework to deal with global crises

A high-level FSDC panel will firm up a crisis management framework to deal with the impact of global financial problems at its meeting in Kolkata later this week.

“We will discuss the Financial Stability Report and decide steps to deal with the global crisis,” said a senior Finance Ministry official ahead of the meeting of the Finance Stability and Development Council (FSDC) sub-committee.

The FSDC sub-committee, which is headed by Reserve Bank Governor D. Subbarao, is scheduled to meet on December 8. The panel includes the heads of regulating agencies like SEBI, IRDA, PFRDA and Finance Ministry officials.

According to sources, the FSDC will also be discussing various scenarios with regard to the sovereign debt crisis in euro zone countries and the possible steps to neutralise the impact of global problems on India.

The agenda for the meeting includes “creation of a framework for decision-making involving the agencies that will be involved in the decision-making process, with clearly defined responsibilities and a mechanism for information exchange and coordination.”

The effort, sources said, would be to develop a mechanism to deal with “sudden shocks” in the balance sheets of financial institutions, which could be on account of natural or man-made crises. The institutions would include banks, non-banking financial companies, mutual funds, primary dealers, merchant bankers and pension funds.

At its earlier meetings, the FSDC sub-committee had asked the regulators to make an assessment of the impact of the sovereign debt crisis on the Indian financial system.

With worsening of the sovereign debt crisis in Europe, especially in countries like Greece and Italy, it has become imperative for India to develop a framework to deal with the problems as the government is not in a position to provide a stimulus to boost growth.

Finance Minister Pranab Mukherjee had recently said, “I am not in a position to provide that level of fiscal stimulus which I was able in 2008-09, but certain policy changes can improve the situation a little bit, which we are doing.”

According to Reserve Bank Deputy Governor Subir Gokarn, “In recent weeks, the macroeconomic environment has become particularly turbulent. Global conditions have contributed to a significant rebalancing of portfolios as a result of rapidly changing risk perceptions and appetites.”

“This has led to increased instability and volatility in financial markets, particularly currency markets... While overall macroeconomic conditions may cause concern, we need to take an integrated and forward looking view of positive and negative indicators and future risks while thinking about appropriate policy responses,” he said.

Alpari to be Platinum Sponsor of the Futures and Forex Expo

For the second year in a row, Alpari (US) is the Platinum sponsor of the Futures and Forex Expo which will take place from September 22 to 24, at Caesar’s Palace in Las Vegas.

Alpari (US) will be in the Exhibit Hall Booth #201, where visitors can interface with experts demonstrating Alpari platforms including, MT4, Alpari Direct and Direct Pro powered by Currenex, and the newest platform, AlpariFX Options. Access to Alpari’s expert research tools, Autocharist and Trading Central, will also be onsite. Visitors can register for a free demo account and spin a prize wheel for a chance to win live trading accounts, and Alpari branded products and services. There will also be a raffle for a chance to win an iPad 2.

Alpari (US) will present sessions led by forex industry experts Raphael Savrnoch, the new Senior Vice President of Business Development at Alpari (US), and Robert J. Seifert, a principal with AbleDelta. Some of the topics to be covered include: Trading Systems 101, Market Crisis and the Psychology of Forex Trading. Savrnoch and Seifert will also be participating in two panel discussions; Seifert in “Everything You Ever Wanted to Know About Futures but Were Afraid to Ask” and Savrnoch in “The Forex Market: Expert Insight and Strategies.”

Alpari (US), LLC was established in 2006. The company is based on Wall Street, in the financial district of New York City, where it is dually registered by the Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant (FCM) and a Retail Foreign Exchange Dealer and has been a member of the National Futures Association (NFA) since 2007, Member ID: 0379678. Alpari (US) is an independent entity within the group of Alpari companies.
With a history dating back to 1998, the Alpari companies (“Alpari”) are among the world’s fastest growing providers of online foreign exchange (“FX”, “Forex”) trading services. The group of Alpari companies has more than 50 offices in cities in over 20 countries, including London, New York, Shanghai, Dubai, Moscow, Mumbai and Frankfurt. Combined, the companies look after over 540,000 customer accounts*, generating monthly trading volumes in excess of $210 billion*, and employ over 620 people* worldwide.
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