Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
nil (0 oz)
No of oz to be served (notices)
Total monthly oz gold served (contracts) so far this month
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month
And now for silver
we neither gained nor lost any gold at the GLD
|Ounces of Silver in Trust||314,553,561.600|
|Tonnes of Silver in Trust||9,783.71|
By: Theodore Butler
-- Posted 11 November, 2011 | Discuss This Article - Comments: 4 |
Oftentimes, the significance of truly historic events is not fully appreciated at the time they occur. I think we are at one of those times with the bankruptcy of MF Global. There’s no question that the news and overall circumstances of the demise of the large commodities brokerage is widely known, but the significance of the event is not yet fully understood. While I would classify the event as an unmitigated disaster on many levels, I have hope that it might result in some long-overdue and necessary changes in the commodities regulatory structure.
The disaster is that for the first time in modern financial history, the main guarantee of the clearinghouse system has completely failed its most important constituent – the customer base. The underlying promise to every participant in the futures market is that your money and open positions are safe from theft and default. This is the very glue that holds the future market together, namely, that all market participants can depend upon strict regulation and oversight to safeguard against fraud and theft. That’s what has made the US organized futures exchange system the envy of the world. Until now. For more than a week, almost all of the 50,000 commodity customers of MF Global are in limbo as to the access and status of their funds on deposit and open positions. This is unprecedented and beyond bad. For these 50,000 customers, it’s the equivalent of discovering your bank just went out of business and there is no assurance all your funds will be returned. (In the interest of full disclosure, my background is in futures, having started as a commodity broker at Merrill Lynch some 40 years ago. But I have not traded futures for years and am no way personally involved in the MF Global mess; I’m strictly an outside observer and independent analyst).
Let me cut to the chase here and pinpoint the real problem – the CME Group. I know I have continuously criticized the CME, even calling it a criminal enterprise on many occasions, but in truth I may have understated the case. Yes, I would agree that the immediate cause of the MF Global bankruptcy was MF Global itself; but what turned it into a disaster of unprecedented proportions was the CME Group. The CME Group was the front line regulator for MFG, responsible for auditing and insuring the safety of customer funds and for guaranteeing those funds in a worst case scenario. The CME failed at every turn. Not only did its auditing fail miserably, the CME failed to step up to the plate to safeguard customer funds after it was discovered that $600 million was missing. This is like a case of paying premiums for years on an insurance policy only to be denied coverage when presenting a claim for the first time. I know that the federal commodity regulator, the CFTC, has been negligent in the case of MF Global as well, but that does not mitigate the CME’s failures.
Of the twin failures by the CME in the MF Global bankruptcy, clearly of more significance is its failure to stand up and guarantee that all MFG customers would be immediately made whole by the clearinghouse system run by the CME. The clearinghouse system, a consortium of financial firms whose collective finances stand behind every trade, has been the main backstop to all futures trading for many decades. It was widely understood by all market participants that if a clearing member failed, all the other clearing members and the exchange itself would step in to guarantee customer funds and prevent contract default. TheCME boasts on its web site that anywhere from $8 billion to $100 billion in protection is available in the event of a clearing member failure. If it was telling the truth, it would seem $600 million should be no problem.
Instead, we all have a very big problem, thanks to the CME Group. Our financial and credit systems are based upon trust and belief. The word credit itself comes from the Latin word “credere” or to believe. What the CME Group has done by not immediately guaranteeing all MF Global customers and positions is to undermine belief in the futures market clearing system. So important is this issue that I am at a loss to explain how the CFTC hasn’t yet mandated that the CME do the right thing. And I have been somewhat dumbfounded that the analytical community and media haven’t been all over this, but there was an article in today’s NY Times that discusses the CME’s failures for the first time. In addition, there was a well-written article on the Internet that did describe the problem and the CME’s role. Please pay particular attention to the comments submitted on both articles.
Worst of all, even MF Global customers who held no open futures positions and only cash and unencumbered assets, like registered warehouse receipts for silver, gold and other commodities, have found those assets under the control of the bankruptcy trustee. If you do own warehouse receipts on silver or other commodities that are tied up in the MF Global bankruptcy, you must run, not walk, to a securities attorney to secure your legal rights to your property. This is not a matter of what is right or wrong, as the unauthorized appropriation of private property is never correct. This is a matter of law, which sometimes is not the same as what seems right or wrong. Please don’t delay. The CME is to blame for all of this, but blame must be saved for later.
If there is any good that might come from this whole sordid affair it is that it may shine the light on what needs to be done. What needs to be done is that the CME Group must be stripped of any regulatory powers it has. As I have long contended, there is a clear conflict of interest in having a for-profit entity set its own rules and regulations, especially an entity that shows nothing but contempt for its own members at large and its customers. The CME Group spends all of its energies encouraging artificial trading schemes, like High Frequency Trading, designed to increase trading fee revenue and not on market integrity and customer protection. The CME Group has just demonstrated to the world its contempt with its failure to stand behind MF Global customers even though it promised to do so beforehand. Next time you watch the CME Group commercial that runs incessantly on financial TV that proclaims how farmers and airlines come to the exchange to hedge their price risks, please keep in mind that the CME just abandoned those farmers and airline customers who were MF Global clients.
One other small bonus that has emerged from this disaster is that the event has revealed as a lie all the nonsense that CME leaders have publicly proclaimed about the integrity of their markets. For the past few years, the smug and arrogant leaders of the CME have testified publicly before congress and the media about how the exchange’s clearinghouse system withstood and avoided the failures of the non-clearinghouse financial system as typified by AIG. CME officials trumpeted the advantages of it being a Self-Regulatory Organization (SRO), quite capable of handling regulatory matters without the need for further government regulation. Unfortunately, even high officials of the CFTC were apparently sucked in by the appearance of financial strength and integrity portrayed by the CME’s clearinghouse system of guarantees and the wisdom of letting it continue to regulate itself. That has now all been shown to be a lie. What good are guarantees if they are not honored when need be? What good is self-regulation if it leads to the wholesale abandonment of the customers’ financial interest?
Fortunately, there is a simple remedy to the calamity of distrust growing in our market system as a result of the CME’s failures. The CFTC must immediately force or persuade the CME Group to do what it has promised and should have done on its own, namely, immediately guarantee that all customers of MF Global are made whole. Let the lawyers battle it out as to who is ultimately liable after all the customers have been made whole. That the CFTC hasn’t done this yet is bizarre. If the Commission delays longer what is now clearly a primary failure at the CME will soon become primarily a CFTC problem. We need adult supervision right now. Clearly the CME Group is not up to the task. If the CFTC doesn’t take over responsibility and force the CME to do the right thing, God help us all.
Another thought in closing. The CFTC’s recent official affirmation that it is continuing its three year old silver investigation shines another spotlight on the CME. The investigation of silver by the CFTC clearly involves the CME, as the world’s leading marketplace for silver is the COMEX, owned by the CME for the past three years. Yet the CME has never said one word about the ongoing silver investigation as it has been content to hide behind the CFTC and pretend there are no allegations of a silver manipulation. I guess that is to be expected from an entity that regulates itself.
I’m purposely confining my comments to the emergency at hand. There is no change in the silver outlook. It is still a crooked market destined to go much higher in the long run. The sooner the CFTC cracks down on the CME and then addresses the silver manipulation, the sooner those higher prices will come.
November 10, 2011
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The MFGlobal bankruptcy crossed over into Canada yesterday:
MF Global Canada Declared Bankrupt
The Canadian Investor Protection Fund, the investment industry’s customer compensation agency, has obtained a bankruptcy order in the Ontario Superior Court against MF Global Canada, the Canadian subsidiary of MF Global Holdings which sought Chapter 11 protection in New York last week. KPMG Inc. has been appointed as trustee in bankruptcy for MF Global Canada.
The Investment Industry Regulatory Organization of Canada, whose dealer members support the CIPF, had previously obtained an order requiring MF Global Canada to cease dealings with the public.
The IIROC said: “The [bankruptcy] order is designed to ensure the fair and orderly management of customer accounts and the financial affairs of MF Global Canada Co.”
Mr. Justice Colin Campbell of the Ontario Superior Court of Justice granted the bankruptcy order on November 4 in the wake of protective action taken by the Securities Investor Protection Corporation, CIPF’s counterpart in the United States. Among its other liabilities, MF Global was exposed to about $6 billion worth of sovereign debt and had only about $1 billion in equity.
In a joint statement, the IIROC and CIPF said they "are committed to taking available measures to protect the interests of all MF Global Canada Co. customers and to preserve account value in an expedited manner.”
KPMG will work in consultation with CIPF and in collaboration with the IIROC, MF Global Canada and third-party organizations, such as clearing organizations and custodians, to verify all customer accounts and to determine the financial position of the firm.
The trustee’s task has been complicated, however, by the appearance of recent articles in the media describing the transfer of some MFGC accounts to future commission merchants in the US.
KPMG says that it “understands that all of these transfers were subsequently reversed, “adding that “these transfers occurred without [its] knowledge or approval.”
KPMG is in the process of confirming that all of these client positions are recorded in the records of MFGC and says the US custodian for these accounts has confirmed that the collateral supporting these accounts is in its possession for the account of MFGC.
The outcome of MF Global’s Chapter 11 proceedings in the US is highly uncertain. Normally, the intended purpose of such proceedings is to provide an opportunity to reorganize a business, not liquidate its assets.
In an article published in Corporate Counsel Magazine and posted on Law.com, Cassels Brock partner, Bruce Leonard, the Chair of the International Insolvency Institute, said that such a task is "very difficult, and perhaps verging on impossible" for multi-country financial entities. "I can't remember the last time a large financial intermediary with international operations was successfully reorganized."
Leonard noted that Chapter 11 proceedings allow management to remain in place, rather than requiring the appointment of a trustee, so they provide "a soft landing”. In a sense, you're using Chapter 11 to slide into oblivion."
Then late last night, the CME announced that they were going to help customers with the aid of a flush fund and a partial recovery.
The interesting development in the MF Global story came after the close on the stock market where the CME made a partial settlement to the trustee. I believe that Bruce is wrong as the customer collateral account is segregated and does not belong to MFGlobal or can be seized. However, what is true if the customer does not get its 100 cents on the dollar back, nobody will place their money with brokerage accounts and consumer confidence will fade badly:
(courtesy Bruce Krasting/zero hedge)
The $300mm is in the form of a guarantee. The objective is to get the Bankruptcy Trustee to release money owed to former MF customers. From the CME release:
-The amount of “missing” customer money is $600. So the CME is picking up the tab for half of the nut.
-This is a glass half full for MF customers. Yes, they are getting half their money back. But my read from this is that this other half is very much at risk.
-The CME steps up for $300 large and they don’t have to? Nobody does that. There is more to this offer than meets the eye.
-I can’t see how the CME can be held liable for MF customer losses. Therefore the money is an attempt to preserve the integrity of the exchange and to protect its members.
-It’s possible that the CME action was done with a gun to their head. Absent a fix (partial or otherwise) a systemic risk was (is) a consequence. The only one who could hold a gun in this discussion is Treasury.
-Has anyone noticed that Treasury has been silent on the MF story? I’ve been very surprised at this. It’s long since time that Geithner should have spoken publicly on this important development. The WH wants to steer clear of anything that smells like a bailout. The WH is ignoring its responsibilities.
-It’s (again) clear that there is a ton of cash sitting with the Trustee. The reason this money has not been forwarded to customers is that there is a claim against it. I can’t imagine how that can be.
-The most likely entity that is claiming the money is JPM. It’s possible that JP is acting on behalf of yet another party, but I doubt that.
-That this matter has now gone on for two weekends confirms to me that there are losses outside of MF. What shouldn’t have happened has happened.
-Early next week the Trustee will accept or reject the CME deal (I’m sure there are strings). If the Trustee does reject this (its very unusual) then there will be some fallout. If this happens, all of the customer money is at risk.
-I’ve thought from the beginning that this had the makings of a Black Swan. I’m not sure that the actions by the CME defuse the risk.
-If there is going to be a reaction (capital withdrawals from other brokers, liquidity issues in futures markets), it will be evident on Monday.
-If I had an account with a second tier broker I would take the money out. It’s easy to put it back in. It’s a disaster if you can’t take it out.