Updated to include additional Dodd-Frank information, comments from Securities Investor Protection Corporation CEO Stephen Harbeck, and investor comments. NEW YORK ( TheStreet) -- Large creditors like JPMorgan Chase ( JPM) may not be alone in facing losses from failure of MF Global ( MF), if speculation of missing client funds turns out to be correct. MF Global filed for Chapter 11 bankruptcy on Monday, after negotiations of a rescue deal with Interactive Brokers Group ( IBKR) were terminated, with various media reports that Interactive Brokers got cold feet because client funds were missing. JPMorgan is MF Global's largest creditor with $1.2 billion in exposure according to the bankruptcy petition. The Wall Street Journal on Wednesday reported that MF Global admitted to federal regulators that customer money was missing, citing an unnamed federal official, and also said that the Commodity Futures Trading Commission (CFTC) would issues subpoenas to MF Global and that the FBI was planning to investigate as well. The Securities Investor Protection Corp. (SIPC) on Monday quickly initiated the liquidation of brokerage customer accounts at MF Global, with a federal judge appointing James W. Giddens as trustee for the liquidation. SIPC CEO Stephen Harbeck said that the liquidation proceeding was started because "customer accounts were at risk
since counterparties were refusing to do business with MF Global," and because the company was "incapable of making the calculations required of them under the financial responsibility rules."
SIPC protection also doesn't cover unregistered investment contacts, fixed annuity contracts or currency contracts. If a failed brokerage firm's records are found to be accurate, the trustee and SIPC may simply arrange to move brokerage accounts to other firms, while notifying customers of the transfer and their option to move to another brokerage firm of their choice. One futures trader with an MF Global account through his broker said that his account had been frozen, with his broker "trying to move the account over" to another futures clearing firm, "so far without success." The investor added that he had "open trades," and felt fortunate that he wasn't "screaming to get out at the moment," but that it was "a little bit uncomfortable not to have them at our finger tips." It's a good idea to make sure that your brokerage firm is a member of the SIPC. For member firms, "Member SIPC" appears in all in all signs and advertisements.
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