As former MF Global chief executive Jon Corzine prepared to testify this week before a U.S. Congressional committee about missing customer money, independent broker Rosenthal Collins Group (RCG) attempted to restore customer confidence in the futures market by publishing exactly where it is holding its client collateral.
On its website homepage 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 November 30, 2011, 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 clearing houses and brokers.
Fallout from the collapse of MF Global, a brokerage firm that filed for bankruptcy on October 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.
On Thursday before the U.S. House of Representatives Agriculture Committee, Corzine apologized to customers, employees and investors who have suffered because of the brokerage firm's collapse, but said he does not know where missing customer money is.
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 SACROSANCT
The missing money in MF Global segregated customer accounts could be as high as $1.2 billion, according to the bankruptcy trustee, an unprecedented breach of industry rules. Regulators believe it is less than that.
John Werner, chief executive of White Commercial Corp, an FCM headquartered in Stuart, Florida, that holds up to $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. Chief executive 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 week.
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 client's money in short-term Treasury bills and approved money market funds, O'Connor added. We do not even extend tenors into longer term treasuries or agencies.
INDUSTRY STILL FEELING EFFECTS
MF Global's bankruptcy 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 well.
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, Florida. 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)