Tag Archives: MF Global

NFA Provides Guidance to CTAs re: MF Global

Trading Program Performance Presentation FAQs

Managers registered with the CFTC as either CTAs or CPOs are required to file a disclosure document with the NFA for review by the NFA prior to using the documents to solicit clients/investors.  The disclosure documents are required to conform with certain NFA rules.  The NFA previously provided guidance to CPOs with respect to disclosures regarding the MF Global bankruptcy.  Specifically, the NFA provides guidance with respect to the manner in which CTAs provide trading program performance information in their disclosure documents.  The NFA’s guidance provides CTAs with a reasonable way to deal with describing performance if assets were held at MF Global and then transferred after the bankruptcy.

CTAs should remember that disclosure documents must be update (and reviewed by the NFA) every nine months.  If you are a CTA that needs help updating your disclosure documents, please contact us.

The full NFA release is reprinted in full below.


Notice to Members I-12-04
January 27, 2012

Frequently Asked Questions – Trading Program Performance Calculations and Presentation by CTAs with Client Assets held at MF Global, Inc.

As a result of the October 31, 2011 bankruptcy proceeding involving MF Global, Inc. (MFG), NFA has received a number of questions from CTAs regarding how to calculate and present performance information for Trading Programs with client managed accounts that were affected by the MFG bankruptcy proceeding. NFA is issuing this notice to address those frequently asked questions.

1. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, I continued to trade the accounts according to the trading program. How do I reflect the performance results?

Results should be based upon the assets under the CTA’s control. Any customer assets that were not included in the transfer may not be included in assets under management for purposes of calculating the trading program’s rate of return. The trading program’s capsule performance must include appropriate footnote disclosure (See question 5 below).

2. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, all positions in those accounts were liquidated, and I did not resume trading these accounts in accordance with the trading program. How do I reflect the performance results after the transfer?

For November 2011, the performance capsule for that trading program should reflect NT to indicate that the program did not trade during the month. The trading program’s performance capsule must include appropriate footnote disclosure (See question 5 below).

3. My managed client accounts that were held at MFG and the open positions in those accounts were subsequently transferred to another FCM. After the transfer, I was able to continue trading those accounts. I have notional funding agreements with those accounts. Should I continue to include the amount of notional funds under the agreement in assets under management for purposes of calculating rate of return?

If you are trading the managed client accounts pursuant to an active notional funding agreement, you should continue to calculate rates of return using nominal account size as the denominator.

4. I have some managed client accounts held at MFG (with open positions that were subsequently transferred) and other managed client accounts held at other FCMs that are trading the same program. Since I did not have full control over the assets held at MFG, the rates of return for those accounts are materially different than the rates of return for accounts held at an FCM other than MFG. How do I reflect the performance results of the program?

For the month of November 2011, you should exclude the accounts that were held at MFG from the performance capsule. You do not have to prepare a separate capsule for these accounts. However, the trading program’s performance capsule must include appropriate footnote disclosure (See question 5 below), including the range of the rates of return for those accounts.

5. What information should I include in the footnote disclosure?

At a minimum, the footnote disclosure should:

      • Explain that as a result of the MFG bankruptcy proceeding, certain client managed accounts were not fully under the control of the CTA and therefore were excluded in whole or in part from the monthly performance calculation;
      • Indicate the number of client accounts excluded;
      • Indicate the amount of assets that were excluded;
      • Indicate the percentage that the excluded assets represent of total assets under management for that program as of October 31, 2011.

6. Do I need to amend my disclosure document to reflect this information?

CTAs that plan to solicit new clients must ensure that all material information in their disclosure documents has been updated including, but not limited to, changes to assets under management, past performance results, and the firm’s carrying broker relationships. As a reminder, all amended disclosure documents must be submitted to NFA for review prior to use.

Any questions regarding these disclosure issues should be directed to:

Susan Koprowski, Manager, at (312) 781-1288 or at [email protected]
Kaitlan Chi, Manager, at (312) 781-1219 or [email protected]
Mary McHenry, Senior Manager, at (312) 781-1420 or at [email protected]


Cole-Frieman & Mallon LLP works with CTA and CPOs and provides managed futures legal and compliance services.  Bart Mallon can be reached directly at 415-868-5345.


NIBA Petitions For Release of Segregated Funds to MF Global Customers

The National Introducing Brokers Association (NIBA) has started a petition asking the judge in the MF Global bankruptcy proceeding to release customer segregated funds.  Below we have provided the full text of the petition which members of the community can sign by going here.  It is unclear how this would work in conjunction with the CME’s promise to guarantee up to $300M of the missing $650M or so (for more information on this, please see the CME release).

Below the reprint of the petition, we have also posted a recent statement by the FIA on MF Global.


Release remaining cash balances of former MF Global customers

Greetings NIBA members and supporters,

We urge you to sign the following petition in order for the bankruptcy court to have a chance to hear from you – the broker, the trading advisor, the IB – directly. Some of you have the resources to pursue your interests individually, that’s great. But, the court needs to hear from all of you. Our voice is much stronger if we are unified; acting collectively, we can make a difference. This is one of the reasons you belong to and support the NIBA. We are standing up for the rights of all our members. Please sign regardless of whether you cleared with MFG.


Honorable Martin Glenn
U.S. Bankruptcy Court, Courtroom 501
One Bowling Green
New York City, NY 10004

The National Introducing Brokers Association (NIBA) submits this Petition urging you to exercise your authority and immediately, to the extent it does not hinder the bankruptcy process, permit the release of the remaining cash balances of liquidating and transferred customers of MF Global, and of customers who were included in the bulk transfer process. To the extent there are sufficient “segregated” funds available, they are the assets of the customers. Further, those funds are absolutely vital for the marketplace to function fully. The result of withholding these funds is affecting the ability of customers to maintain and trade their positions, and will impact liquidity and trading volume – absolutely necessary for an efficient market.

The NIBA is a 20-year old non-profit association of registered Introducing Brokers, Commodity Trading Advisors and Associated Persons who transact business for customers in the retail sector of the futures industry, as well as in managed futures. Our membership includes professionals associated with MF Global, as well as IBs, CTAs and APs at the receiving futures commission merchants. Our customers include individuals and entities as diverse as farmers, pension funds and users of energy and metals.

Customers and futures professional alike are suffering under the current scheme. We urge you to heed Petition and release these funds. We want to get back to work.

Respectfully, The National Introducing Brokers Association




[Your name]


FIA Issues Statement Regarding MF Global

WASHINGTON, D.C. ―Nov. 9, 2011― The Futures Industry Association issued the following statement in response to the events involving the bankruptcy of MF Global.

The Futures Industry Association (FIA) is deeply troubled by the failure of MF Global (MFG) and the financial distress that the apparent shortfall in customer segregated funds has caused our members’ customers and the markets generally. Segregation of customer funds is the cornerstone that assures the financial integrity of our markets and any violation of these segregation requirements cannot be tolerated.

Since the appointment of a Trustee for MFG on October 31, FIA member firms have been working closely with all affected stakeholders, including the CME Group, ICE Clear US, ICE Clear Europe and other relevant derivatives clearing organizations, to effect the prompt and orderly transfer of customer positions to other futures commission merchants (FCMs).

FIA supports a full review of the circumstances that led to the failure of MFG and, in particular, the apparent shortfall in customer segregated funds. FIA recognizes that this apparent shortfall will delay the date by which customers will receive all of the funds that were on deposit with MFG. Futures customers cannot afford to have the funds they had deposited to support their positions held up while the claims process runs its course. FIA strongly encourages the Trustee, with the assistance of the Commodity Futures Trading Commission and the clearing organizations, to complete an interim accounting and facilitate the prompt return of all customer funds.

The FIA is the primary industry association for centrally cleared futures and swaps. Its membership includes the world’s largest derivatives clearing firms as well as derivatives exchanges from more than 20 countries. For more information, please contact Joanne Morrison ([email protected]) at 202.466.5460 or visit our website at www.futuresindustry.org.


Cole-Frieman & Mallon LLP provides legal services to the managed futures community.  Please contact us if you have questions or call Bart Mallon directly at 415-868-5345.

Is there SIPC Insurance for Futures Accounts?

SIPC Does Not Cover Futures Accounts at MF Global

The MF Global bankruptcy is creating a number of problems for managers with accounts at the firm. One question we have received from some managers is whether their client accounts are insured either through the Securities Investor Protection Corporation (“SIPC”) or through some sort of similar company.  Unfortunately there is no SIPC coverage for futures accounts and it is currently unclear how and when clients will find out whether they wil be made whole.  It is curious that there is no insurance for futures accounts given the Refco collapse in 2005, but with this bankruptcy, we are probably more likely to see calls for the creation some sort of SIPC-like insurance.

SIPC & What Losses are Insured

The following is a description of the SIPC from FINRA:

SIPC is a non-profit organization created in 1970 under the Securities Investor Protection Act (SIPA) that provides limited coverage to investors on their brokerage accounts if their brokerage firm becomes insolvent. All brokerage firms that do business with the investing public are required to be members of SIPC. SIPC protection is limited. It covers the replacement of missing stocks and other securities up to $500,000, including $250,000 in cash claims. However, it does so only when a firm shuts down due to financial circumstances in which customer assets are missing—because of theft, conversion, or unauthorized trading—or are otherwise at risk because of the firm’s failure.

SIPC does not cover the following:

  • Ordinary market loss;
  • Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (such as limited partnerships) that are not registered with the SEC; and
  • Accounts of partners, directors, officers or anyone with a significant beneficial ownership in the failed firm.

SIPC Moves Quickly & Makes Statement

The following was posted on the SIPC website on Monday:

WASHINGTON, D.C. – October 31, 2011 – The Securities Investor Protection Corporation (SIPC), which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms, announced today that it is initiating the liquidation of MF Global Inc., under the Securities Investor Protection Act (SIPA).

SIPC today filed an application with the United States District Court for the Southern District of New York for a declaration that the customers of MF Global Inc. are in need of the protections available under the SIPA.

The United States District Court for the Southern District of New York granted the application and appointed James W. Giddens as trustee for the liquidation, and further appointed the law firm of Hughes Hubbard & Reed as counsel to Mr. Giddens.

Orlan Johnson, board chairman of the Securities Investor Protection Corporation (SIPC), said: “When the customers of a failed SIPC member brokerage firm have left their securities in the custody of that firm, SIPC acts as quickly as possible to protect those customers. In this case, SIPC initiated the liquidation proceeding within hours of being notified by the SEC that a SIPC case was necessary to protect the investing public.”

While the SIPC is not insuring the accounts, they are involved with helping investors.  The following press release discusses the SIPC’s involvement in helping investors to transfer accounts:

U.S. Bankruptcy Judge Martin Glenn approved a request to allow the transfer of certain segregated customer commodity positions from MF Global Inc. to one or more futures commission merchants (FCMs). The request was made by the trustee appointed by the Securities Investor Protection Corporation and oversee- ing the liquidation of MF Global Inc.

This action will allow for the transfer of approximately 50,000 client accounts, the substantial majority of which were cleared through the Chicago Mercantile Ex- change (CME). These transfers will unfreeze commodity positions with a notional value of $100 billion and represent a substantial position of all existing commod- ity accounts at MF Global Inc.

The notice above can be found on MF Global’s regulatory notices webpage.

Next Moves & Conclusion

Commodity pool operators who advise funds with accounts at MF Global should have already alerted investors in such funds.  For more information on this please see our post on the NFA Guidance re: MF Global.

Other persons who are interested in receiving more information about the liquidation and account transfer process should find the following websites helpful:

We will continue to provide updates on MF Global which we think will be helpful to our readers.  If you have specific questions, please feel free to send us questions and we will do our best to provide appropriate information through the blog.  As we mentioned above, we think that there is likely to some sort of regulatory fall-out from this and we believe that law makers will call for insurance for customer accounts.


Cole-Frieman & Mallon provides legal advice to FCMs, IBs, CTAs and CPOs.  Bart Mallon can be reached directly at 415-868-5345.

NFA Provides Guidance re: MF Global

CPOs Must Provide Information to Fund Investors

Below is guidance just provided by the NFA regarding MF Global.  Commodity Pool Operators must provide investors with a disclosure regarding the fund’s assets held at MF Global.  Additionally, if the CPO is soliciting new investors for the fund, the CPO will need to amend their disclosure document and have the disclosure document reviewed by the NFA prior to first use.

Please contact us if you need help with respect to any of the items discussed in the NFA memo below.


November 1, 2011

Proposed Guidance for CPOs with Pool Funds Held at MF Global, Inc.

NFA recognizes the need for our CPO Members to keep their pool participants informed as to what has occurred with MF Global, Inc. (MF Global) and how it may affect future operations. In this regard, NFA, in consultation with the CFTC, is providing guidance on disclosures that CPO Members with pool funds held at MF Global must make to their participants. At a minimum, CPO Members must provide their pool participants with a disclosure statement that includes the disclosures summarized below. Members are also encouraged to provide any additional disclosures that are necessary given their specific business operations.

If you are a Member operating a pool that has pool funds held at MF Global, you must make the following disclosures:

  • On October 31, 2011, MF Global reported to the SEC and CFTC possible deficiencies in customer segregated accounts held at the firm. As a result, the SEC and CFTC determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets, and SIPC initiated the liquidation of MF Global under the Securities Investor Protection Act.
  • As of (insert date) approximately $XXX of (Name of Pool)’s assets were on deposit in an account(s) at MF Global. These assets represent XX% of the (Name of Pool)’s net asset value of $XXX.
  • The General Partner does/does not believe that these actions will have a material impact upon the operations of (Name of Pool) and its ability to:
    • Satisfy redemptions requests;
    • Adequately value redemption requests and the manner in which they will be handled;
    • Accept new subscriptions in (Name of Pool) and properly value the net asset value for new subscribers; and
    • Provide for accurate valuation in the (Name of Pool)’s account statements provided to participants.
  • Participants are cautioned that there can be no assurances:
    • That (Name of Pool) will have immediate access to any or all of its assets in accounts held at MF Global; and
    • As to the amount or value of those assets in the context of the bankruptcy.
  • Participants should also be aware that future actions involving MF Global may impact (Name of Pool)’s ability to value the portion of its assets held at MF Global and/or delay the payment of a participant’s pro-rata share of such assets upon redemption.

The above disclosures must be provided to current pool participants through a separate written communication. In addition, Members who have a current disclosure document and plan to solicit new participants must ensure that they have updated their disclosure document to include these disclosures. In this regard, please remember that all amended disclosure documents must be submitted to NFA for review prior to use.

Further, with respect to the valuation of pool assets and redemptions, each Member is urged to consult with its CPA to ensure these items are reported in accordance with generally accepted accounting principles or international financial reporting standards, as applicable.

If you have any questions, please do not hesitate to contact the following individuals:

Mary McHenry at (312)781-1420 or at [email protected]

Tracey Hunt at (312)781-1284 or [email protected]

Todd Maines at (312)781-1560 or at [email protected]


Cole-Frieman & Mallon LLP is an investment management law firm which provides CPO registration and compliance services.  Bart Mallon can be reached directly at 415-868-5345.