Commodity trading slowly returned to normal on Tuesday as MF Global resumed selling off client positions, although new revelations about missing money sent chills through the markets.
The higher trading volume across all the major U.S. futures markets after Monday's near paralysis belied the deeper angst and frustration among many traders whose collateral funds were still frozen and who now feared that the stricken broker may have failed to separate customer accounts from its own money.
There is a smoother operation of the open outcry and the CME Group was able to get market markers back on the floor, said Dan Flynn, analyst at PFGBest Research in Chicago.
There is still some fear in the market because the question is whether it was just sloppy back office or not, in terms of the segregation of funds or not.
After a temporary freeze on all trading activity, MF Global was allowed to resume liquidating customers' grains and livestock positions on the Chicago Mercantile Exchange and all ICE Futures USA positions around midday.
Fresh concerns centered on the CME Group's revelation that MF Global failed to protect customer accounts by keeping them separate from its own funds, adding to client worries about how and when they would get their money back.
The abrupt failure of MF Global -- which billed itself as the number one broker on the New York Mercantile Exchange and COMEX, and the second largest on the CME -- brought activity on Monday to a crawl, with most major exchanges severely limiting activity or suspending its membership.
In Australia, trading in grain futures and options was suspended by bourse operator ASX Ltd, prompting concerns about the integrity of the country's agricultural futures market.
But trading volumes for gold, oil and agricultural commodities neared normal levels on Tuesday.
MF Global, led by ex-Goldman Sachs top man Jon Corzine, has become the most high-profile victim so far of the euro zone debt crisis, reviving memories of the collapse of Lehman Brothers in 2008 that triggered global turmoil.
The bankruptcy put a sudden end to Corzine's drive to change the more than 200-year-old MF Global into a mini Goldman by taking risky bets on euro zone sovereign debt.
The broker admitted to using its clients' money as its financial troubles mounted, the Associated Press reported, citing a U.S. official. The breach of segregation left brokers and traders, both outside and within MF Global, shocked.
You'd think that in today's regulatory climate, and with all that's happened in the last two years, how could this even be a possibility? said one MF Global employee, who asked not to be named. I don't know how people could have access to the segregated accounts.
As of 11:30 am CDT (1630 GMT) on Tuesday the company had liquidated just 20 contracts, after liquidating about 100 on Monday, said one MF Global broker in Chicago said.
Trade sources said there was no mad rush by clients to close out their positions because those who had trading accounts with other brokers could transfer their positions.
Clients are liquidating because it's easier, quicker for them to start over somewhere else, he said, declining to be named. He added that some clients had gotten out of the markets last week when troubles heightened for MF Global.
Introductory brokers said clients were scrambling to find new clearing houses and to check on their accounts.
On Friday, I said in my letter to clients that if they wanted to transfer to a new clearing house to let me know and Monday morning they all did and we were able to transfer them to Rosenthal Collins, said Ron Lawson, Managing Director at LOGIC Investors LLC.
(Reporting by K.T. Arasu, Theopolis Waters and Mark Weinraub in Chicago, Matthew Robinson, Robert Gibbons, Janet McGurty and Gene Ramos in New York in New York and NR Sethuraman in Bangalore; editing by Jim Marshall)