The complex pursuit of the missing $1.6 billion in segregated customer funds lost by bankrupt broker MF Global could take up to six years to sort out, with full payback to customers unlikely, a top futures industry official said on Tuesday.
"Six years, that's my personal estimate," Christine Cochran, an attorney and president of the Commodity Markets Council, told Reuters in an interview on the sidelines of an industry meeting on MF Global at the CME Group offices.
Cochran said the release of $600 million in MF Global accounts last week by JP Morgan Chase to the trustee handling the bankruptcy was an encouraging signal in a process that has already dragged on more than seven months since the massive global derivatives broker collapsed on October 31, 2011.
"It's promising. We understand the legal complexities around these types of transfers," she said. "Obviously, depending on what numbers you use a billion dollars still potentially hangs out there."
But auction rates for claims against MF Global obligations have risen to about 90 percent of face value, buoying sentiment among former MF Global customers that the trustee will eventually settle most if not all the claims, she said.
"When you look at the claims market and see that people are buying at the 90-93 percent level, we see that as a good sign," Cochran said, indicating a "strong probability" that former MF Global margin accounts "will be made whole or come very close to being made whole."
However, "We could easily talk about six-year time frame," she added, given the complexity of bankruptcy cases and the possibly a lawsuit against former MF Global CEO Jon Corzine likely to stretch the timeline.
Nevertheless, both JP Morgan's transfer of funds and the trustee's threat of a lawsuit this week accusing Corzine of "breach of fiduciary duty and negligence" were seen as positive by investors as well as speculators paying as much as 93 percent of face value for MF Global obligations.
"That's significant especially when you think in context of general bankruptcies. For any creditor to get 93 percent is phenomenal. It shows the diligence of the trustee," she said.
Would every MF Global debtor get their fair share?
"It's tough to say fair share because it won't probably be 100 percent," Cochran said. "However, I think the process has been fair and equitable, and that's what is important. I wish the time line was shorter."
Cochran said the CME, at the center of the fire storm over the missing funds which investors had thought "safe" and under the oversight of the CME clearing house, had made some progress in gaining back a measure of confidence from traders. But CME has more work to do, she said, and its competitor ICE, which has opened competing grain futures, has an opportunity.
"I haven't heard any chatter about lawsuits against CME," Cochran said. "As far as CME, I understand the concerns."
But she went to complement their actions since the collapse of MF Global, including CME's creation of a guaranteed fund.
"The guaranteed fund liberated the trustee to release money that I don't think he was inclined to release without it," she added.
CME set up a $300 million guarantee fund two weeks after MF Global filed for bankruptcy to prod MF Global trustee James Giddens to release frozen customer funds.
"I don't think customers would have 72 percent today if it hadn't been for CME's guaranteed fund. I know that might not satisfy people. We're working to get 100 percent," she said.
(Reporting by Christine Stebbins; Editing by David Gregorio)