ICE

[parsley]

As we have discussed, MF Global declared
bankruptcy. MF Global's CEO Corzine lied to the
US senate committee.

MF Global, MF Global FX and Global Canada
Online, are trade names for MF Global Canada
Co.

MF Global Canada Co. Is a wholly owned
subsidiary of MF Global Holdings Inc.

MF Global Canada Co. Is an approved participant
of Toronto and Montreal Exchanges and a
clearing participant and registered futures
commission merchant of ICE Futures Canada 

ICE has been preparing for wheat and barley
futures trading in Canada.  pars

[bduke]

Parsley... The contracts farmers signed with MF Global to hold trading
accounts have hypothecation clauses.

Hypothecation "hypothetically" deems customer accounts to be collateral
for the brokerage.

My understanding is that MF Global made a huge bet on a foreign currency
defaulting its bonds, and insured it with a credit default swap. They..MF
Global.. believed they were insured.

However, the currency/bonds they bet against...Italy& Spain I think.. paid
50% of their bonds, and while MF Global expected to cash in their CDS
agreements, the holders of the Swaps said 50% is technically not a default.

The Swaps did not trigger, but MFG had used hypothecated funds as
collateral.

MFG also had huge margin accounts to cover, plus loans secured by
customer accounts. The results are obvious.

Farmers need much better contracts...IMHO. We rely far too much on trust
of our buyers and their legal counsel.

Cheers... Bill

[parsley]

There are a series of articles written by  Matt
Koppenheffer which I will post edited.

#1

The Astonishing Collapse of MF Global
"You can't just look at what is good in the
moment, what feels good, what works for today
may not be the answer"
 
Prior to stepping into the role as MF Global 
(OTC: MFGLQ) CEO, Jon Corzine had a
penchant for saying all of the right things when it
came to how a financial company should be run.
During his first earnings conference call as the
broker's CEO, Corzine, a former New Jersey
governor, U.S. senator, and chairman of 
Goldman Sachs (NYSE: GS  ) , reassured Wall
Street analysts and the company's shareholders
that taking on huge risks wasn't going to be the
answer to turning around MF Global:
But the goal here is not to be a [proprietary]
trader. ... I don't think that we will be in a risk-
taking position, substantial enough to have it be
the kind of thing that the rating agencies would
say, "Holy cow, these guys have got a different
business strategy" than what we told them we
had.
And yet, in late October 2011, the country's
eighth-largest futures broker filed for bankruptcy,
a collapse that was precipitated by a $6.3 billion
bet on European sovereign debt championed by
Corzine himself.

MF Global is the United States' eighth-largest
bankruptcy by assets -- larger than both Chrysler
and utility giant Pacific Gas & Electric. At the end
of August, the company held more than $7 billion
in U.S. futures customers' funds, more than 
Barclays (NYSE: BCS  ) and Morgan Stanley 
(NYSE: MS  ) . And as the company is wound
down through the bankruptcy proceedings, more
than 2,000 employees stand to lose their jobs.
And as if the collapse itself wasn't enough, in the
wake of the bankruptcy it was also revealed that
$1.2 billion of MF Global customers' funds were
missing, putting thousands of farmers, ranchers,
independent traders, and fund managers in
financial jeopardy.


More than a month after the company's
bankruptcy filing, the story continues to unfold
and evolve, but there is much that is already
clear. In the wake of the bankruptcy filing, The
Motley Fool undertook extensive research that
included scouring thousands of pages of primary-
source documents and interviewing current and
former MF Global employees, clients, lawyers,
regulators, and other experts and industry
participants. We've pieced together a picture that
is in many ways uncomfortably familiar. Yet it
also brings new lessons that highlight an urgent
need for the industry to make changes.
MF Global was a futures broker with roots tracing
back more than 200 years. Despite its longevity,
the company was deeply struggling just as the
financial crisis reached its fever pitch. The broker
had been spun off from its U.K. hedge-fund
parent and was the victim of poor internal
controls, likely stemming from the merger with a
rival that had been crippled by fraud.
The weakened company then fell under the spell
of two Wall Street "masters of the universe" --
two former Goldman Sachs stars: the much-
lauded private equity investor J. Christopher
Flowers and Jon Corzine. Each fueled by a need
for redemption, Corzine -- who was brought in by
Flowers to run the company -- tailored a high-risk
strategy for MF Global, surrounded himself with
others unlikely to question his decisions, and
turned himself into the supreme "CEO trader."
Extreme leverage and a huge concentrated bet
on European debt eventually led the company's
counterparties to run for the hills, leaving the
broker to collapse.
Other than that, Mrs. Lincoln...
But it turned out that the bankruptcy of MF Global
was only part of the story. In the final days of MF
Global's solvency, a huge chunk of supposedly
protected client funds had vanished from its
books. In the wake of that revelation, U.S.
account holders were frozen out of their accounts
as regulators moved in to sort out the mess.
We spoke with many of those affected by this act
of the MF Global drama. Southwest Minnesota
farmer and father of four Dean Tofteland ended
up with $250,000 locked up by the broker.
Without access to those funds to post margin for
his open positions, all of his crop hedges were
liquidated. He was also unable to jump in to start
buying seed for the 2012 growing season,
thereby missing out on early purchase discounts
and top seed varieties.
Tofteland was not alone. Don Miller, a futures
trader we spoke with, had $2 million frozen and
was scrambling to pay his daughter's college
tuition bill; Elaine Knuth, the owner of a
commodity-trading advisory, had to completely
shut down her business; and Joe Thomas, a
small Tennessee cattle rancher, believes he may
lose $30,000.
The fiasco at MF Global put all of these
individuals and their livelihoods at risk, but as we
look to the bigger picture, the confidence blow it
dealt the futures market has the potential to harm
the broader economy. Efficiencies gained through
the use of futures by both producers and users of
commodities are often passed on to us as
consumers. As such, a loss of confidence in the
safety of those markets could hit the already-
shaky U.S. economy right where it hurts -- in
consumers' wallets.

[parsley]

I'll post the next one tommorow. You may want to
comment before the next one. I find it quite
fascinating. Pars

[parsley]

Farmers must make it a point to become
knowledgeable about who they do business with,
and how that business should operate, ,,, as
opposed to how it is actually functioning. Pars


On Feb. 27, 2008, a registered trader named
Evan Dooley made a bad bet on wheat futures,
forcing the firm to cover $141.5 million in losses.
News of the scandal would break the next
morning, leading investors to sell in a panic.

As shares of MF Global fell 27%, Fitch Ratings
put the firm on negative watch, citing fear of
cracks in its risk management system. 
Two and a half weeks later, on March 17, rumors
of a liquidity crisis hammered the stock to what
was then an all-time low of $3.64 a share. MF
Global closed the day's trading off 65%.
For a firm dependent on investor confidence in
order to raise capital, MF Global had seen half its
equity wiped out in a few short hours.

In May, with its stock price still lagging, a debt-
burdened MF Global agreed to what might be
best described as a bailout investment from the
private equity firm J.C. Flowers & Co. In
exchange for pledging up to $300 million in
capital, JCF would get the right to place up to
two board members and would also receive
discounted convertible shares yielding 10.725%.
A JPMorgan Chase analyst called the terms
"onerous," yet the deal paid off: Flowers'
investment had restored confidence in MF 

On July 18, 2007, MF Global raised $2.9 billion in
a public offering. It was less than parent Man
Group of the U.K. had hoped for, but still the
second-largest New York Stock Exchange debut
of 2007.
Kevin Davis, then CEO, had reason to crow. So
did Chief Financial Officer Amy Butte. The pair
appeared on CNBC the day of the offering to
celebrate the firm's prospects minutes before
making the honorary first trade of the day. For
Butte, in particular, it was a special moment:
She'd helped NYSE Euronext (NYSE: NYX  ) go
public two years earlier via the exchange's
acquisition of publicly traded Archipelago
Holdings. MF Global's IPO hailed her return.

Davis, meanwhile, played the role of conquering
hero. A British import with a $1 million annual
salary, he'd started in interest rate futures at what
was then ED&F Man in 1991, rising to CEO of
Man Group's brokerage unit eight years later.
Over the next several years he'd expand Man's
interests in futures, options, and derivatives
brokering, including overseeing the two largest
acquisitions in Man Financial's history: GNI in
2002 and Refco in 2005. The resulting patchwork
came public as MF Global.

Volume soared as a result of Davis' empire-
building. MF Global brokered 1.5 billion
exchange-traded futures and options contracts in
the 2007 fiscal year ending that March, up 49%
from the year prior and more than double 2004
levels.
Futures contracts specify a price and terms for
buying or selling currency, stocks, or raw
materials. For example, commodities futures
allow farmers to lock in prices for corn, cattle,
pork bellies, soybeans, and the like to be
delivered to a buyer at a later date. 

At MF Global, higher contract volume meant
more revenue and profit. The company's pre-tax
earnings had more than tripled in the year
leading up to its public offering. Operating
margins expanded from 3.9% to 8.1% over the
same period, good for the industry in which MF
Global operated but far below what Corzine --
then governor of New Jersey -- was used to as a
former investment banker.

Treasuries were still yielding well, supplying MF
Global with ample interest income. What's more,
a newfound interest in and access to electronic
exchanges -- including Butte's target at the
NYSE, Archipelago -- had Davis convinced that
industrywide volume would continue rising more
than 20% annually.
"I think we're going to see a lot of new retail
[futures] products, spread products, binary
products ... different ways to trade the same
markets, but in a more exciting way," Davis told
CNBC at the time.

Yet few believed. As Butte and Davis rushed
from the floor to participate in NYSE pomp and
circumstance, investors were busy selling shares.
MF Global closed off 10% on its first day of
trading.
Most accounts express little surprise at the
market's reaction. Man Financial had hoped to
spin off its futures brokerage at $36 to $39 a
share, only to be forced to cut its target to $30 a
share as markets reacted to a worsening credit
crisis that only a month earlier had forced Bear
Stearns to stop redemptions of hedge funds
invested in troubled subprime mortgage debt.

Blackstone Group (NYSE: BX  ) could have also
played a role. The hedge fund manager debuted
at $31 a share in a $4.1 billion offering in late
June only to see its stock fall more than 30% by
the time of MF Global's IPO. Davis' uber-
brokerage was entering a chilly market that was
slowly freezing.

But if timing was a factor, the structure of the
spinoff may have been even more important.
Months before coming public, MF Global took out
a 364-day $1.4 billion bridge loan, in part to
repay debts owed to the parent company it hadn't
yet separated from.
According to the prospectus, Davis and his team
planned to refinance the debt but found little
traction with investors. So, as the calendar
turned to 2008, management instead agreed to
pay higher interest rates on $1 billion of existing
debt while pushing back the deadline for
repayment. MF Global had become a deadbeat.

Investors and analysts had good reasons to be
nervous. Regardless, the sell-off in MF Global
shares convinced our own Motley Fool Global
Gains service to recommend the stock in
September 2007, at $26.17 a share.

That December, Refco, which Man Financial
acquired in a bankruptcy auction coming just two
months after its summer 2005 IPO -- beating out,
among others, J.C. Flowers & Co. -- was back in
the headlines. Former Executive Vice President
Santo Maggio had pleaded guilty to one count of
conspiracy to commit securities fraud, two counts
of securities fraud, and one count of wire fraud.
The plea implicated former Refco chief executive
Philip Bennett and would set in motion additional
pleas and convictions in the months and years
following. 

Today, at least three former Refco executives
and associates are either already in or on their
way to prison. Bennett is serving a 16-year term
for his involvement in a scheme to hide $430
million in bad debt.

In 2008, investors either didn't know or didn't care
that Refco had become a part of MF Global. Yet
they should have. Assets attributed to the deal
accounted for 11.3% of fiscal 2007 revenue.
Hundreds of employees had come over in the
deal, including senior executives Steve Grady,
Dennis Klejna, and -- for a time -- Joe Murphy.
All three were named in a May 2010 federal
consent order relating to the Refco fraud. Grady
forfeited $1 million, Klejna $1.25 million, and
Murphy $5 million in proceeds authorities allege
were fraudulently obtained through a 2004
leveraged buyout of Refco by Thomas H. Lee
Partners.
Murphy left the firm in November 2008 to
become an executive vice president of R.J.
O'Brien, but Grady and Klejna stayed as Refco
transformed into MF Global. Both enjoyed
positions of power.

Grady, in particular, had led MF Global's Chicago
operations until June 2011 when he was
promoted help run the Prime Services business.
Refco's influence was alive and well until the very
end.
The connection between these two firms extends
beyond assets and employees. Refco under
Bennett and MF Global under Davis shared a
penchant for regulatory and exchange violations
that far exceeded the history of peers such as
Morgan Stanley and UBS.

Under Davis, MF Global was cited three times by
the governing Commodity Futures Trading
Commission and 77 times by various New York
and Chicago exchanges with which it did
business. Refco, by contrast, was cited nine
times by the CFTC and a whopping 136 times by
exchanges.

All told, the CFTC fined MF Global more than
$12.1 million during the Davis era, with $10
million of that primarily related to failures
associated with the Dooley debacle. Yet two
other citations are equally (or even more)
troubling.

In 2007, around the same time as the Maggio
plea, the CFTC settled for $2 million in penalties
and $75 million in restitution relating to charges
that MF Global had unwittingly aided a fraud
committed by hedge fund manager Paul Eustace
of Philadelphia Alternative Asset Management.
Regulators cited poor bookkeeping and
insufficient supervision in allowing Eustace to
execute the scheme.

Earlier that same year, in February, the CFTC
settled for $120,000 in penalties relating to
charges that MF Global failed to supervise broker
Steven Camp. The agency accused Camp of
fraud for misrepresenting poorly performing
trading systems as profitable when soliciting
customers from 2002 to 2005. The firm agreed to
$196,900 in restitution as part of the settlement.
These and other regulatory actions lend credence
to assertions made in an early 2008 class action
suit that was at first dismissed, but then settled
for $90 million in damages following appeal,
according to filings supplied by the legal search
site Justia.

A revised complaint from that case cites
anonymous witnesses who describe MF Global's
culture as one where brokers were encouraged
to take trades others wouldn't in order to boost
volume. Years later, Corzine would be accused of
similar recklessness.

The complaint also alleges that Davis and others
knowingly authorized removal of controls in order
to increase the speed with which trades could be
executed, improving "competitive viability." The
descriptions are notable in that they jibe with
reporting conducted by auditor and accounting
watchdog Francine McKenna in the wake of the
wheat trading scandal.

MF Global has since paid its out-of-pocket share
($2.5 million) of the $90 million due while
denying the allegations or any wrongdoing.
Nevertheless, the fines and Davis' departure in
October 2008 (replaced by former Chicago Board
of Trade chief Bernard Dan) speak to the
concerns investors and regulators had about the
way MF Global handled risk during Davis' reign
as chief executive.
The trade that changed everything
But of all the mistakes made during the Davis
era, none were nearly so devastating as allowing
Dooley to trade beyond his means. According to
a grand jury indictment handed down in April
2010, Dooley, who prosecutors accused of fraud,
skirted in-house guidelines by deliberately shifting
risks to MF Global for trades made in his
personal account.
Dooley declined to comment for the story, citing
ongoing litigation, though some reports doubt that
he was acting maliciously. Either way, the money
is gone, marking the first but not last high-profile
failure of a risk-management system that MF
Global actually touted as a competitive
advantage in its IPO prospectus:
We also believe that our focus on brokerage
services and standardized products, and the fact
that our trading markets tend to be relatively
liquid with readily available pricing information,
enable us to effectively evaluate and manage the
risks posed by our clients' positions. In each of
our last four fiscal years, our losses due to
trading errors and client defaults have
represented less than 2% of our revenues, net of
interest and transaction-based expenses, with
losses due solely to client defaults representing
less than 0.5%. 

Infamous last words. Failing to live up to the
standard expressed in its IPO document cost
Davis his job and MF Global $141.5 million in
trading losses, creating fear, uncertainty, and
doubt about the firm's future. MF Global needed
a savior. It would get one in Chris Flowers.

[cottonpicken]

Big complicated story.

Rumours of a prescious metals delivery scam.

Out right theft.

True amount stolen possibility over 2 billion.

Goldman,jp morgan,us government love triangle.

Complete breakdown of trust in the sector.

Mmmmmm,what about a stable unlevered brokerage,cdic
coverage, named cwb ...aaa never mind

[bduke]

Parsley... For clarity my prior comment regarding hypothecation should have
been... hypothecation "hypothetically" deems trading accounts to be the brokers
for collateral purposes.

There is also re-hypothecation which allows the same accounts to be used by the
broker again for collateral while currently pledged.

While these funds are not the brokers, my understanding is that they are valid
pledges and the creditors have first rights to this money.

If we are not able to have contracts without hypothecation, we should keep our
trading account balances minimal...IMHO.

Cheers... Bill

[bduke]

Parsley... For clarity my prior comment regarding hypothecation should have
been... hypothecation "hypothetically" deems trading accounts to be the brokers
for collateral purposes.

There is also re-hypothecation which allows the same accounts to be used by the
broker again for collateral while currently pledged.

While these funds are not the brokers, my understanding is that they are valid
pledges and the creditors have first rights to this money.

If we are not able to have contracts without hypothecation, we should keep our
trading account balances minimal...IMHO.

Cheers... Bill

[bduke]

Oops Parsley... I didn't double click for the duplication.

I was backing up pages to a prior site and this must
trigger the re-send.

Sorry folks...Bill

[cottonpicken]

I think the total possible leverage in north america is
regulated at 140%.

In london there is no ceiling and my understanding is
corizone took this out to 40 to 1.

[cottonpicken]

Bduke,what do you think of my idea of the cwb being a
brokerage?

[bduke]

Cottonpicken... Theoretically I like the idea.

My concern is its cultural. I consider culture to be the experiences, attitudes and
expectations which drive behaviour.

The embedded culture in the CWB is a risk, especially without exceptionally strong
leadership.

If a John DePape were to become the CEO and issue strict ultimatums and 60 day
deadlines to comply with the new BoD's policies, and his benchmarks, it could be
dominant.

By compliance I mean behavioral adjusting or leaving the firm.

The CWB does have very intelligent people. I think some of the old guard would be
problematic.

Cheers... Bill