AMARILLO, TEXAS -- Your Daybreak Ag report is certainly a touchy subject for investors.
The current buzz, the allegation that MF Global used client funds to cover losses in Proprietary Trading Activities.
MF Global declared bankruptcy and was consequently barred from conducting business on major commodity exchanges. Client accounts were on liquidation only basis and all cash and collateral were frozen.
The concern for commodity investors was the inability to get to their cash and or collateral as well as absorbing losses on positions. Positions were limited to liquidation only. A Bankruptcy Judge has approved the transfer of accounts with their positions, however the cash and collateral will not move for now.
This situation was a concern for the Member Firms willing to accept the accounts and their positions as they would assume risk without any capital or assets tied to it. It was announced that the CME Group would be making arrangements for these accounts with funds that are "Clearing Funds".
These are funds held that have been collected by the other Member Firms in the case of such a situation. The CME Group also has "third party insurance contracts" that are available to them.
The CME Group is essentially the "guarantor" for the performance of commodity contracts. So in essence, you could move your positions to another clearing firm, but you would have to refinance your positions. The situation also created concern within the markets as traders were waiting to see how and when MF Global might liquidate positions. This could greatly affect pricing.
This situation along with the resurgence of the Eurozone debt problem weighed heavy on commodity markets this week.
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