CHICAGO (DTN) -- Attendees at the National Grain and Feed Association Country Elevator meeting learned two things about MF Global on Monday: CME Group won't offer any more guarantees and some customers could get preferential treatment when it's time to pay bankruptcy claims.

An audience member asked CME Group Chief Operating Officer Bryan Durkin if CME would be willing to guarantee the remaining funds still held by the bankruptcy trustee. A federal court approved the transfer of $2.2 billion Friday, which brings customers' accounts to 72% of what they were when MF Global filed bankruptcy on Halloween.

"We've taken the steps that we think are, well obviously they've been unprecedented, but very prudent. In context of the $550 million backstop guarantee that we have put forward to the trustee to accelerate the movement of collateral, in order for, to ask us to, to take that next step it would be an unprecedented action for us to take and I think in many respects unwise when you look at the basis for the guarantee that we have on deposit," he said.

The fund was designed to protect the futures markets from systemic risks and accelerate the return of collateral to clients. CME Group increased the fund after the amount of MF Global's shortfall in customer accounts was upwardly revised from $600 million to $1.2 billion by the trustee.

"CME Group has a fiduciary responsibility to its customers and to its shareholders and that we really feel we can't expose ourselves to that level of responsibility and risk. It's not covered as a part of our roles in the clearing facilities. However, all of that being said, we have taken some very unprecedented steps to move the trustee into getting the collateral."

In his prepared remarks, Durkin said some conclude that the system of account segregation failed, but he reminded the audience: "It's important to know, however, that this was the failure of a firm. A firm that broke the rules. Not the failure of any clearinghouse. ... We recognize that investigations and any future punishment is of little comfort to those customers like some of you that are here today that are still suffering and awaiting the return of funds that they thought were safe."

In addition to the $550 million guarantee, which protects the bankruptcy trustee if he overpays or has a problem, CME Trust is putting up $50 million to help cover losses on CME products. That's nearly all the capital in the trust fund.

Durkin said CME Group believes MF Global needs to make all of its customers whole and will work on their behalf to make sure every penny is returned. He noted they've even added Q&A to their page on the bankruptcy to help clients through the bankruptcy claims process. MF Global futures customers have until Jan. 31 to file a bankruptcy claim. The claims deadline for clients with physical property deposited as collateral, silver certificates for example, is today, Dec. 12.

The trustee was expected to file a court brief that will explain how claims will be distributed. Because MF Global had about 400 broker-dealer accounts, the bankruptcy trustee is subject to Securities Investor Protection Act (SIPA) liquidation statutes which could allow some customer claims to be paid at a different rate than others, mostly at the discretion of the trustee.

Under SIPA distribution schemes, customer claims are divided into six categories such as U.S. futures accounts, deliverable accounts (in the case of customers who posted physical collateral), and commodity options accounts. The trustee decides who gets what of the leftover funds based on these categories.

Commodity traders caught up in the bankruptcy are pushing for all client accounts to be paid first and on an equal basis. In most civil bankruptcies, the first step creditors take is to file a claim. Then the trustee reconciles the company records with each claimant, allowing for a dispute process. Once that's settled, distributions are made, usually at a flat rate for all claims.

"It's not going to be an even 11% across the board or even 20% across the board. There will be inconsistencies," said George Angelich, a bankruptcy lawyer for Arent Fox that NGFA has hired as an outside counsel. "It may turn out that deliverable account clients get 100% of the value of their accounts. And it's entirely possible that all the shortfall is backed up into the U.S. futures accounts," Angelich said.

That distribution is at the trustee's discretion and will be included in his brief. Angelich advised the audience to read the brief and think about disputing his positions in court if they disagree. He will also be filing a brief in response on Jan. 9.

But the first step toward possible recovery is to file a claim, regardless of how the trustee may categorize your account, he said.

"My opinion is everyone should file a claim. If your office is on the fence, if you're not sure, you need to sit down with your lawyer and think this process through," Angelich said.

Congressional hearings are set up throughout the week in Washington to examine the MF Global collapse. The Senate Agriculture Committee will hold a hearing on Tuesday.

Editor's note: For more DTN coverage of the MF Global bankruptcy, visit http://www.dtn.com/…

Katie Micik can be contacted at katie.micik@telventdtn.com

(CC/AG)

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