Dow Jones Reporting Preparing For Potential Bankruptcy (Etrade)
Clearinghouses Preparing For Potential Bankruptcy Of MF Global -Sources
Font size: A | A | A
8:55 PM ET 10/30/11 | Dow Jones By Jacob Bunge
Of DOW JONES NEWSWIRES
Exchange clearinghouses and U.S. regulators were preparing late Sunday for a potential bankruptcy filing or other restructuring by broker-dealer MF Global Holdings Ltd. (MF), according to people involved in the process.
The New York-based broker has been working this weekend to secure the sale of assets or the entire company, but by late Sunday a restructuring was seen as one option for all or parts of the company.
MF Global is one of the largest customers of a raft of derivatives exchanges in the U.S. and overseas, and had over the last week remained "in good standing"--or fit to trade--despite its sliding share price and concerns over liquidity and customer defections.
Clearinghouse officials Sunday held a series of conference calls with MF Global and regulators to assess the impact of any bankruptcy filing, according to people close to the matter.
Exchange clearinghouses guarantee both sides of an exchange-based trade, storing collateral posted by members that provides a cushion against large trading losses or potential defaults.
CME Group Inc. (CME) operates the biggest U.S. clearinghouse for futures trading. Other major clearinghouses are run by IntercontinentalExchange Inc. (ICE), New York Portfolio Clearing and the Options Clearing Corp., the latter of which handles all trade in U.S. stock options.
If MF Global slides into bankruptcy, the outstanding trading positions of its customers would be protected by U.S. laws governing derivatives markets. However, these positions would need to be transferred to other members of the clearinghouse, a process that requires the exchange or parent company of each clearing facility to rally other members and keep regulators apprised.
Should a bankruptcy filing happen, some officials anticipated larger-than-usual volatility to churn the markets where MF Global is most active, such as futures linked to the price of commodities, interest rates and stock indexes.
The company wasn't immediately available for comment on any discussions with the clearinghouses.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; email@example.com