The broker filed for bankruptcy protection in the US on Monday after it could no longer afford to post margin on a $6.3 billion bet on European sovereign debt and failed to find a buyer for the business despite frantic attempts, prompting regulators in Asia to suspend the firm’s operations and start winding down the company.
“The appointment of provisional liquidators will safeguard the assets of the Hong Kong companies and ensure that the interests of clients, employees and markets are properly served,” said Patrick Cowley, principal of KPMG China. “The provisional liquidators are assessing the options for the companies, and are actively seeking to dispose of the business in conjunction with other administrators appointed globally.”
Regulators in Singapore responded quickly to news of the firm’s imminent collapse during the weekend, telling the firm’s local operation on Monday to stop putting on new trades and start closing out positions. Stock exchanges in Sydney and Tokyo suspended the firm’s trading activity on Tuesday, while the Hong Kong unit made a voluntary suspension.
MF Global’s rapid demise has caused panic among some clients, with reports in Singapore of worried investors thronging the firm’s offices, but so far the winding down has been fairly orderly, in Asia at least. Traders noted some unusual price movements yesterday, such as the iShares Hong Kong exchange-traded fund moving strongly higher in afternoon trading, but the worst of the turmoil was in European markets.
For staff in Asia, the outcome is likely to be redundancies across the board. MF Global’s business in the region centred around foreign exchange, but it was expanding its presence in equities after hiring Peter Wells in January as Asia-Pacific head of equity trading, tasked with building and running a customer facilitation and equity trading capability for the region. Other hires included heads of equity sales and trading for Greater China, and a head of Asian trading based in New York. It had also been expanding its commodities platform.
The firm employs 2,900 people worldwide and has operations in 12 countries and on more than 70 exchanges. It provided execution and clearing services for exchange-traded and over-the-counter derivative products as well as for non-derivative foreign exchange products and securities in the cash market. It had a client base of more than 130,000 active accounts ranging from financial institutions, industrial groups, hedge funds and other asset managers to professional traders and private and retail clients.
Most of its operations are outside Asia. For example, it has fewer than 100 staff in Hong Kong and slightly more than 50 in Tokyo.
Since the search to find a buyer for the whole business failed, KPMG will aim to quickly appraise the individual businesses and sell them as soon as possible. A deal may be possible as the Asian units are insulated from many of the problems the firm has encountered in the US and Europe, and there is an abundance of potential buyers among the region’s ambitious and cash-rich banks.
Meanwhile, MF Global Sify Securities India, a joint venture, is operating as normal and claims to be safe from the problems in the rest of the firm. “There are no linkages with the international business and all clients’ monies are safe,” Vineet Bhatnagar, the unit’s managing director, told Dow Jones. “We have excess funds with the exchanges in India that we are members of.”
It remains to be seen if that holds true.
