MF Global's bankruptcy in and of itself has not posed a systemic risk to the market, although shares of Jefferies(JEF) have been tumbling on concerns that it may follow MF's footsteps.
Get alerts before Link and Cramer make every trade
But MF Global's customers have lost big time. The CME has found an estimated $633 million discrepancy on its books related to customer accounts, leading to allegations that the firm may have intermingled client money with its own funds in a violation of rules. MF Global maintains that the shortfall is result of money stuck at banks that handle trades or unintentional bookkeeping, according to the Wall Street Journal.When a brokerage firm fails and cash or securities appear to be missing from customer accounts , the SIPC(Securities Investor Protection Corp) will oversee an orderly liquidation of brokerage customer accounts, providing up to $500,000 in coverage for missing cash and securities, including a $250,000 limit for missing cash. But the SIPC does not cover MF Global's commodities futures contracts that fall outside the brokerage umbrella. Those fall under the umbrella of the CFTC(Commodities Futures Trading Commission), which does not have an insurance fund similar to the SIPC. SIPC protection also doesn't cover unregistered investment contacts, fixed annuity contracts or currency contracts.It is too early to tell if the money is really missing and if so how much customers will ultimately recover. But it is clear that customers, who in this case could very well be a farmer betting on the price of corn, have been left scrambling from the impact of the bankruptcy. The primary regulators of MF Global are the SEC, FINRA and the CFTC. The Federal Reserve does not oversee the firm as it was not a bank holding company and was not big enough to be under their purview. But as others in the blogosphere have pointed out, perhaps if MF Global had actually been systemically important, the firm might not have gotten away with an outsized leverage ratio of 40 to 1.
1 2 Next › Last »Regulators are making it tougher for big banks to fail by stiffening capital requirements, pressing them to be more transparent and how much risk they can take with their capital.
The intense scrutiny also means that no big firm would ever make the mistake of violating basic tenets like segregating customer accounts with regulators breathing down their necks.
That means that when it comes to choosing where you put your money, the argument goes, you might be better off choosing a bank that is too-big-to-fail.Meanwhile, irate customers , sick of being nickeled and dimed, are considering pulling out of big banks like Bank of America(BAC) and JPMorgan Chase(JPM) on Bank Transfer Day on Nov.5. While they have abandoned plans to charge customers for debit-card transactions amid a nationwide backlash, large banks, facing a revenue shortfall from low interest rates and new regulations, will find a way to make you pay . So for those contemplating bailing on the big banks, are you willing to bet your money on firms that are not as tightly regulated and more prone to failure? Would you risk doing business with a firm like MF Global rather than deal with a too-big-to-fail firm like Bank of America? Take TheStreet's poll to find out what other readers think.>To follow the writer on Twitter, go to http://twitter.com/shavenk.>To submit a news tip, send an email to: tips@thestreet.com.
>To order reprints of this article, click here: Reprints « First ‹ Previous 1 2
No comments:
Post a Comment