The trustee overseeing the bankruptcy of MF Global filed on Tuesday for permission to release 60 percent of the near $900 million in client cash that has been frozen at the commodity brokerage for more than two weeks.

In a measure that will provide some relief to traders who have clamored to get access to their funds, James Giddens sought permission to return about $520 million to some 15,000 commodity customers even as the search continues for client money that regulators say MF Global may have misappropriated in its final days.

The motion, which must still be approved by the court, came after intensifying pressure from commodity traders and the leading exchanges, who said that punishing customers who had liquidated their trading positions ahead of MF Global's October 31 bankruptcy set a worrying precedent.

Open trading positions were transferred to other brokers a week ago, along with about 60 percent of their collateral, but clients with cash only were unable to move their money out.

The distributions, applicable to those who held only cash in their accounts as of October 31, could be made within days, Giddens said.

Giddens had said last week that any transfer of funds would need to wait until customers had filed claims against their frozen cash-only accounts, a process he was seeking to expedite. But some customers had filed a suit seeking to release their funds, and on Friday the CME Group made an unprecedented offer to put up $300 million of its own funds as a guarantee to try speed up the process.

The collapse of MF Global, once the eighth-largest futures commission merchant by funds and one of the most active on U.S. commodity exchanges, has rocked confidence in the broker industry and the marketplace, both because of the possible violation of supposedly sacrosanct client accounts and because of what traders say has been a painfully slow effort to return frozen funds to clients.

Those without access to their capital have been largely unable to put up the collateral required to open new trades, losing time and opportunity in a volatile market.

The extent of the shortfall in segregated customer funds is still not known, the trustee said in the filing. MF Global collapsed in late October after former Chief Executive Jon Corzine's highly leveraged $6 billion bet on European sovereign debt triggered a crisis of confidence in the broker, triggering margin calls and a run on its funds.

But as the investigation continues more cash may be released.

The Trustee expects to be able to make one or more additional interim distributions as part of the expedited claims process, with the goal of ensuring equal treatment of all of MFGI's customers in advance of the final determination of the pro rata share to which they are each entitled, according to the filing.

The filing said that some 21,000 customers had a total of $869 million in cash-only accounts at the time of MF Global's failure. Another $1.5 billion in collateral had already been moved to new brokers when approximately 3 million open trading positions were transferred.

Unsettled by the prospect that their excess funds could be unsafe, or that they could be frozen for weeks in the event of another failure, traders across the world are demanding more assurances from their brokers.

We need to know where the money is. Show us the bloody money. It's not their money, it's not even our money. It's our clients' money -- some of whom worked all their life for it, Jean-Marc Bonnefous, a managing partner with hedge fund Tellurian Capital Management in London, told Reuters earlier on Tuesday.

Even if the trustee is able to return more of the frozen funds to clients, most will likely have to endure a lengthy bankruptcy process before recouping much of the estimated $600 million that has gone missing, legal experts say.

While the CME has pledged to use its $50 million CME Trust to help offset losses to exchange participants, a federal insurance fund for broker customers doesn't extend to commodity markets.

(Reporting by Sakthi Prasad in Bangalore and Jonathan Leff in New York; Editing by Michael Urquhart)

United States