MF Global UK Limited in Special Administration

Transcription

1 MF Global UK Limited in Special Administration Special Administrators Progress Report for the six month period 31 October 2012 to 30 April May 2013

2 Notice: About this Report This Report has been prepared by Richard Heis, Michael Robert Pink and Richard Dixon Fleming, the Special Administrators of MF Global UK Limited (in special administration) solely to comply with their statutory duty under Rule 122 of the Investment Bank Special Administration (England and Wales) Rules 2011 to provide creditors and clients with an update on progress in the Special Administration and for no other purpose. This Report is not suitable to be relied upon by any person, or for any other purpose, or in any other context. This Report has not been prepared in contemplation of it being used, and is not suitable to be used, to inform any investment decision in relation to the debt of or any financial interest in MF Global UK Limited (in special administration). Rule 122 requires this Report to cover the six month period to 30 April However, where possible we have provided updated data beyond 30 April 2013; where this is the case we state the date the updated information relates to. Any estimated outcomes for creditors included in this Report are illustrative only and cannot be relied upon as guidance as to the actual outcomes for clients, creditors or other stakeholders. Any person that chooses to rely on this Report for any purpose, or in any context, other than under Rule 122 of the Investment Bank Special Administration (England and Wales) Rules 2011 does so at their own risk. To the fullest extent permitted by law, the Special Administrators do not assume any responsibility and will not accept any liability in respect of this Report. Richard Heis and Michael Robert Pink are authorised to act as insolvency practitioners by the Institute of Chartered Accountants of England and Wales. Richard Dixon Fleming is authorised to act as an insolvency practitioner by the Insolvency Practitioners Association. The Special Administrators act as agents for the Company and contract without personal liability. The appointments of the Special Administrators are personal to them and, to the fullest extent permitted by law, KPMG does not assume any responsibility and will not accept any liability to any person in respect of this Report or the conduct of the Special Administration of the Company. 1

3 Glossary of terms Act The Insolvency Act 1986 (as amended) GMRA Global Master Repurchase Agreement Affiliate(s) ATT A company or companies within the MFG Holdings Group Absolute title transfer Group Holdings Trustee The Company and subsidiaries Trustee in Bankruptcy of MF Global Holdings Ltd/Mr Louis J Freeh Authorities The Bank of England; HM Treasury; and the FCA ISDA International Swaps and Derivatives Association Brokers CMP Company/ MFG UK Court Directors Distribution Plan DTC F&O Third party brokers (including affiliates) Client Money Pool MF Global UK Limited of 5 Churchill Place, Canary Wharf, London E14 5HU with company registration High Court of Justice Chancery Division Companies Court Directors of the Company (as at 31 October 2011): Bradley Ira Abelow; Francis Kemper Cagney; David Moses Gelber; Richard Warren Moore; and Charles Graham Pendred Client Asset Distribution Plan approved by the Court on 18 July 2012 Depository Trust Company Futures and Options KPMG LBIE LCH. Clearnet Lehman Ruling LME MFG Holdings MFG Holdings Group MFG Inc MFG Services OTC KPMG UK LLP Lehman Brothers International Europe LCH. Clearnet Group Supreme Court ruling in LBIE v CRC Credit Fund Limited & Others London Metals Exchange MF Global Holdings Limited MF Global Holdings Limited and its subsidiaries MF Global Inc. MF Global UK Services Limited Over the Counter FCA Finance USA FSCS FX Financial Conduct Authority MF Global Finance USA Inc. Financial Services Compensation Scheme Foreign Exchange Proposals PPE Regulations Statement of Special Administrators proposals under Rule 59 of the Rules Primary pooling event The Investment Bank Special Administration Regulations

4 Glossary of terms (cont.) RTM Rules SAR SIPA SIPA Trustee SIPC Special Administration Special Administrators Special Administration Order US Weil Repo to Maturity The Investment Bank Special Administration (England and Wales) Rules 2011 Special Administration Regime, including The Investment Bank Special Administration (England and Wales) Rules 2011 and The Investment Bank Special Administration Regulations 2011 Securities Investor Protection Act (US) Trustee of MF Global Inc./Mr J Giddens Securities Investor Protection Corporation (US) Special administration of MFG UK pursuant to the Special Administration Order Richard Heis, Michael Robert Pink, and Richard Dixon Fleming of KPMG LLP The Special Administration Order granted by the High Court of Justice, Chancery Division, Companies Court, No of 2011 United States of America Weil, Gotshal & Manges $ United States dollar (unless otherwise stated) Euro The references in this Report to the Act, Rules or Regulations are to Schedule B1 of the Insolvency Act 1986 (as amended), the Investment Bank Special Administration (England and Wales) Rules 2011 and The Investment Bank Special Administration Regulations 2011 respectively. 3

5 Contents Page Introduction 5 Executive summary 7 Financial Information 11 Status of statements, distributions and assignments 14 Update on future distributions 19 Client money 23 Client assets 26 House estate 30 Progress in the Special Administration to date other key areas 32 Costs of the Special Administration 39 Appendices 1. Statutory information 2. Special Administrators Abstract of receipts and payments for the period 31 October 2012 to 30 April 2013 and 31 October 2011 to 30 April Special Administrators Abstract of costs incurred but only partially paid as at 30 April Analysis of time costs for the period 31 October 2012 to 30 April Summary of charge out rates 6. Summary of disbursements for the period 31 October 2012 to 30 April

6 Introduction

7 Introduction Background Richard Heis, Michael Pink and Richard Fleming of KPMG were appointed Special Administrators of MF Global UK Limited on 31 October 2011, by order of the Court following an application by the Directors of the Company. The functions of the Special Administrators are being exercised jointly and severally by the Special Administrators. This appointment followed the filing for Chapter 11 bankruptcy protection in the US by MFG Holdings and Finance USA on 31 October Also, on 31 October 2011 the SIPC instigated the SIPA liquidation of MFG Inc by a petition to the US District Court for the appointment of a SIPA trustee. The Company traded as a broker-dealer in commodities, fixed income, equities, foreign exchange, futures and options and also provided client financing and securities lending services. Purpose of this Report This Report provides creditors and clients with an update of progress in the Special Administration for the six month period from 31 October 2012 to 30 April 2013 in accordance with Rule 122. The Special Administrators previous progress report was issued on 29 November 2012 covering the period 31 October 2011 to 30 October All statutory and supporting information is set out in the attached appendices. Website The MFG UK website is regularly updated with the latest information about the Special Administration. 6

8 Executive summary

9 Executive summary Key achievements, events and milestones achieved during the period (cont.) Conditional settlement with US affiliates On 22 December 2012 MFG UK signed conditional settlement agreements with MFG Inc, MFG Holdings and Finance USA, that once unconditional will allow an initial distribution to unsecured creditors and a further distribution to CMP claimants who have agreed their claims with the Special Administrators. The Special Administrators anticipate being able to declare a dividend of 40p in the to unsecured creditors and a further distribution of 34 in the $ to CMP claimants (taking the total CMP dividend to 60 in the $) once the conditional settlements become unconditional. The three pre-conditions and their status before the settlement can become effective are: 1. US Bankruptcy Court approval of the settlement is achieved: this condition is satisfied and Court approval was obtained on 31 January 2013; 2. JP Morgan Chase unconditionally withdrawing their claim, paying MFG UK the MFG UK Receivable and waiving and releasing any claims they made against MFG UK: this condition remains open, with Court hearings to sanction a separate JPM Chase settlement agreement scheduled for 3 July 2013; and 3. Withdrawal of claims by MFG Holdings and Finance USA: this condition remains open, however, the Special Administrators understand that MFG Holdings and Finance USA will withdraw their claims upon the other pre-conditions being satisfied. Asset recoveries The Special Administrators have recovered a further 72 million of assets into the general estate, taking total realisations to 1.07 billion (Previous report: 1.0 billion). House assets still to be recovered are held with a small number of third party banks and clearing houses, as well as MFG UK affiliates. The Special Administrators have made limited recoveries into the segregated estate during the six months to 30 April $55.8 million remains outstanding. The Special Administrators have largely agreed inter-company balances with the Affiliates and are in negotiations regarding the form in which settlement payments with be made (e.g. set-off amounts). Return of client monies As at 30 April 2013, $219.6 million has been distributed to 2,556 clients. (Previous report: $179.3 million had been distributed to 2,362 clients). To date the FSCS has made payments totalling approximately $48.8 million to 2,279 customers (Previous report: $36.2 million to 1,711 customers) on combined client and creditor assigned claims of over $83.9 million (Previous report: $60.0 million). The Special Administrators have sent out statements to all trading clients (with the exception of 15 major financial institutions with master agreements with whom negotiations are ongoing). 8

10 Executive summary (cont.) Key achievements, events and milestones achieved during the period (cont.) Return of client assets Following the approval of the Client Asset Distribution Plan on 18 July 2012, 38.6 million (Previous report: 23.6 million) of client assets had been returned to clients as at 30 April 2013, either directly or through transfer to alternative brokers. The total value of the client asset pool has increased to 78 million (Previous report: 54 million) as a result of certain claimants successfully proving that their assets are client assets pursuant to the terms of the Banking Act 2009 and which therefore fall to be distributed pursuant to the terms of the Distribution Plan. As at 30 April 2013, 36.9% of Claimant Option Forms (which is the form required to be completed by claimants before their client assets can be returned to them) remained outstanding. The Special Administrators continue to pursue claimants who have not yet submitted their form. The costs associated with the return of client assets under the Distribution Plan are charged to the respective clients on a pro-rata basis. The finalisation of the conditional US settlement will allow the return of client assets held by the US affiliates (or the proceeds of liquidated client assets where the client has requested these assets be liquidated) to be returned to the control of MFG UK, at which point the assets can be returned to clients. Rejected claims A total of 187 (Previous report: 125) client asset, client money and creditor claims with a value of approximately $5.1 billion (Previous report: $5.0 billion) have been rejected by the Special Administrators. The rejection appeal of Finance USA has been put on hold pending the outcome of the conditional US settlement and the Special Administrators are in discussions with a further claimant who has appealed the rejection of their claim. Communications The Special Administrators continue to hold regular Creditors Committee meetings and provide updates to the members of the Creditors Committee as required. The Special Administrators continue to provide frequent updates to the FCA regarding the progress of the Special Administration. The FCA attends the Creditors Committee meetings as an observer. Creditors and clients are updated regularly via the dedicated MFG UK website with relevant documentation made available. Illustrative financial outcome The Special Administrators published an updated illustrative financial outcome as at 31 December 2012 on 13 February 2013 showing an illustrative return to both the client and general estates. Please refer to the Financial Information section of this Report for further information. The Special Administrators intend to publish a further updated illustrative financial outcome as at 31 March 2013 shortly after the release of this Report and will be available via the MFG UK website. The Special Administrators strategy has been to distribute assets to stakeholders as expediently as possible and keep costs to a minimum. The conditional US settlement, if made effective, meets that strategy by both reducing future costs and the distribution timetables significantly, benefitting all stakeholders. However, as a result of the delay in the US settlement process because of the necessary US court procedures, the staff and professional costs of maintaining the infrastructure required to process dividend payments have and are forecast to increase accordingly. These additional costs will be reflected in the revised Illustrative Financial Outcome as at 31 March

11 Executive summary (cont.) Key achievements, events and milestones achieved during the period (cont.) Legal matters A judgement on the Hindsight Application was handed down on 29 January The Court held that client money entitlements of clients with open positions at the PPE are to be valued at the settlement price on 31 October 2011 and not at the point of liquidation. However, claimants into the general estate will have any open positions valued at the liquidation date. The Special Administrators have filed two further applications with the Court. The first of these is seeking directions on the basis on which to value a client s unsecured claim into the general estate resulting from any shortfall in the CMP (the 'Shortfall Application'). The second relates to the imposition of a procedure by which distributions from the CMP should be made (the 'Client Money Distribution Application'). The 30.7 Application proceedings have been stayed until August 2013 pending the US settlement becoming unconditional. These applications are discussed in further detail in the Legal Issues section of this Report and further updates will be provided on the dedicated MFG UK website when applicable. Management of the Company The Special Administrators continue to receive excellent support from MFG UK management and staff and 65 employees have been retained until 28 February 2014 under retention contracts. MFG UK s staff requirements beyond that date will be discussed with MFG Services (their employer) in due course. The process of decommissioning IT systems is ongoing and work is being carried out to ensure that all data that may be required in the future is adequately captured and stored. Seg versus non-seg disputes and tracing of associated balances The Special Administrators, working in conjunction with MFG UK management and staff, have resolved some 1,026 (Previous report: 650) out of approximately 1,300 disputed claims. The remaining disputed accounts are under investigation, and the Special Administrators are working closely with legal counsel to determine the appropriate status of these accounts. Tax The KPMG tax team continue to manage the corporate tax affairs of MFG UK and prepare and submit tax returns as necessary. Work is ongoing to confirm the corporate tax position in the post-appointment periods, with a focus on quantifying gains and losses arising in the period to 30 October 2012 in order to determine the net tax position. The total value of withholding tax reclaims is circa 54 million. The majority of the reclaim amount relates to German withholding tax. The German tax authorities have not yet responded to our submissions. 10

12 Financial information

13 Financial information Further interim dividend declarations are anticipated on the finalisation of the conditional US settlement. Financial outcome for segregated clients Based on the output of the Special Administrators client money distribution model, they began paying a 26% interim distribution to client money claimants who have had their claims agreed. A detailed update on the status of payments on this initial distribution for clients who have agreed their client money entitlement with the Special Administrators is provided in the Statement, Distributions and Assignments section of this Report. There are a number of CMP claimants who are yet to agree their claims with the Special Administrators and the Special Administrators will continue to work through these claims with the respective claimants. Further detail on interim distributions can be found in the Client Money section of this Report. Client asset distribution plan As previously advised, the Court approved the Distribution Plan for client assets on 18 July 2012 allowing the Special Administrators to begin the process of returning approximately 54 million of client assets to claimants on the following day. Information on the Distribution Plan can be found at Since the approval of the Distribution Plan a number of claimants have successfully proved that their assets are client assets pursuant to the terms of the Banking Act 2009 and which therefore fall to be distributed pursuant to the terms of the Distribution Plan. This has caused the value of the client asset pool to increase from 54 million at the date the Distribution Plan was approved by the Court to 78 million as at 30 April 2013 (including not-held client assets). Further detail on the progress of the Distribution Plan can be found in the Client Assets section of this Report. Financial outcome for non-segregated creditors On 28 November 2011, the Special Administrators issued a Notice of Intended Dividend to unsecured creditors of MFG UK, stating their intention to make a dividend payment to creditors within two months of 30 April A further Notice in Relation to the Unsecured Dividend was issued on 29 June 2012 explaining that although significant progress had been made in recovering funds from banks and exchanges since 28 November 2011, a number of issues had arisen (in particular litigation from various US affiliate companies) which would require adequate resolution and Court permission before any interim dividend could be declared and paid. On 22 December 2012 conditional settlements were reached between MFG UK, MFG Inc, MFG Holdings and Finance USA. Pending the satisfaction of a number of pre-conditions it was anticipated by all parties that the settlement would be finalised by March 2013, allowing the Special Administrators to declare an interim dividend to unsecured creditors. However, the condition relating to a settlement with JP Morgan Chase, resulted in the need for a court hearing in July Dependent upon the outcome of this hearing, the Special Administrators are hopeful the settlement will be finalised around mid-august A detailed description of these issues can be found at 12

14 Financial information (cont.) The Special Administrators intend to publish an updated and more detailed illustrated financial outcome as at 31 March 2013 shortly after the release of this Report. This will update the previous version as at 31 December Illustrative financial outcome model The Special Administrators published an updated illustrative financial outcome as at 31 December 2012 on 13 February A summary of the updated illustrative financial outcome can be found at the link below and should be read in conjunction with the associated detailed assumptions and narrative contained in the published document. The Special Administrators anticipate publishing a revised illustrative financial outcome as at 31 March 2013 shortly after the release of this Report. 13

15 Status of statements, distributions and assignments

16 Status of statements, distributions and assignments Summary of statements and distributions As at 30 April 2013, final statements had been issued to substantially all trading customers appearing on MFG UK s systems. As at 30 April 2013 a total of $1.47 billion (Previous report: $913 million) of claims had been fully agreed. The Special Administrators are working with their legal advisers in the UK and Germany to establish the validity of the German introducing broker claims (explained further on the following page). Current progress In order to agree a claim, the Special Administrators have sent out statements to all trading clients (with the exception of 15 customers with master agreements with whom negotiations are ongoing) with an accompanying letter asking them to agree their claim. The breakdown of final statements issued to customers (excluding client asset customers, which are covered in the client assets section of the Report), suppliers and affiliates as at 30 April 2013 is provided below: Segregated Non Segregated Total Number PPE Value ($000) Number Value ($000) Number Value ($000) Customers Fully agreed 3, ,538 1, ,234 4,322 1,467,772 Final statements sent but not agreed 1,358 33, ,853 1, ,410 Values only statement sent but not agreed (a) , ,854 Total trading statements issued 4, ,095 1,933 1,005,941 6,569 1,952,036 Trading statements to be issued (see page 16) 5 18, , ,361 Total trading statements to be issued 4, ,196 1,943 1,013,201 6,584 1,977,397 Other MF Global Inc (b) 1 82, , ,914 Other affiliates (b), (c) 4 39, , ,090 Suppliers , ,923 German introducing broker claimants , , ,519 Claim submitted where MFG systems show no value (d) 49 12, , ,112 Total statements to be issued 4,987 1,132,624 2,832 2,380,331 7,819 3,512,955 equiv 1,474,710 Note: (a) The majority of these customers are disputing the classification of their account. (b) Values are as claimed by each Affiliate. (c) Includes sub-debt of $250 million and accrued interest of $5 million as part of the non segregated claim which is excluded from the published Illustrative Financial Outcomes. (d) Pending further investigation to establish whether claims should be accepted/rejected. Source: Special Administrators records. 15

17 Status of statements, distributions and assignments Summary of statements and distributions (cont.) As at 30 April 2013 $219.6 million has been paid to 2,556 clients. In addition, the Special Administrators have been working closely with the FSCS which has paid approximately $48.8 million to a further 2,279 customers on assigned claims of over $83.9 million. German Introducing Broker Litigation Claims The Company was subject to pre-administration litigation in relation to numerous lawsuits filed in German federal courts by plaintiffs who had accounts introduced by German introducing brokers. Plaintiffs allege that the introducing brokers had contractual relationships with the Company, and executed equity options and other derivatives transactions for them through the Company, and that the Company should be liable for certain alleged tortious acts of both the introducing brokers and the Company. The Special Administrators have received claims from approximately 500 claimants purporting to be owed monies in relation to this matter (often duplicative claims as both clients and creditors). A number of these claimants are recorded in the Company s records as having previously filed litigation in the German federal courts, where they have sought to recover investment losses, statutory interest, attorney s fees and costs. The Special Administrators are working with their legal advisors to understand the basis of the claims made by these claimants as well as those claimants that are not recognised as having filed litigation in the German courts. Client money payments Payments of $219.6 million have been made to 2,556 clients with agreed claims as at April (Previous report: $179.3 million paid to 2,362 clients). This is slightly less than the full 26% interim distribution due to the agreed client money claims of $912.5 million as a result of: Assignment of claims to the FSCS; and Incomplete and ongoing Know Your Customer checks being carried out on the identity of clients and any new bank accounts. FSCS The Special Administrators have been engaged in dialogue with the FSCS since the early stages of the Special Administration. A protocol has been established whereby: All agreed claims are notified to the FSCS on a weekly basis via a secure internet exchange portal; and The Special Administrators provide information to the FSCS to assist it in its assessment of eligibility, noting that the ultimate determination of whether a claim is protected is the decision of the FSCS. To date, the FSCS has made compensation payments totalling approximately $48.8 million to 2,279 customers on assigned claims of over $83.9 million (combined client and creditor assignments). The FSCS can pay up to 50,000 for losses to eligible claimants however, there are still a number of eligible claimants who have not submitted claims to the FSCS. The Special Administrators have agreed an information sharing protocol and payment mechanism with the FSCS by which payments will be made to those claimants whose claim has been assigned to the FSCS. Outstanding master agreement proposals The Special Administrators continue to negotiate with counterparties who are subject to master agreements and discussions surrounding the agreement of accounts are ongoing. Further updates will be provided in due course. 16

18 Status of statements, distributions and assignments Claims assignments Claims assignments update (includes both seg and non-seg claims) as at 30 April 2013 # of claims Total ($m) Claims assigned to the FSCS 2, Claims assigned to third parties Total value of claims assigned 2,803 1,027.2 Source: Special Administrators records. Assignments to third parties As with other large insolvencies, a secondary market in the unsecured and segregated debt claims of the Company has developed since the commencement of the Special Administration. To ensure an efficient and economic process for all parties involved, a standardised process and documentation was implemented by the Special Administrators early in the Special Administration. To ensure the general estate has not had to bear additional costs administering the transfers and conducting new KYC checks, acquirers of debts are required to pay a fee to MFG UK to register transfers. As at 30 April 2013, some 43 different third parties have registered 524 debt assignment transfers with MFG UK. This has generated approximately 790,000 to help to defray the costs of facilitating debt transfers. 17

19 Status of statements, distributions and assignments Rejected claims As at 30 April 2013, an aggregate of 187 separate claims from 140 claimants have been rejected by the Special Administrators. Claims rejected as at 30 April 2013 Number Total ($m) Rejected client money claims Rejected client asset claims Rejected creditor claims (a) 21 4,190 Total rejected claims 187 (b) 5,145 Note: (a) Includes certain claims of Affiliates (b) Some claimants have submitted client money and/or client asset and/or creditor claims Source: Special Administrators records. Rejected claims As reported previously, the majority of the above claims have been submitted by customers of MFG Inc, who themselves had no direct trading relationship with MFG UK. In these situations, trades will have been placed with MFG UK by MFG Inc, on behalf of its own clients. MFG UK believes that it had a contractual relationship only with MFG Inc, and MFG Inc has already submitted an omnibus claim in its own name in respect of its underlying client business. For this reason, claims from clients of MFG Inc have been rejected, except where a direct contractual relationship exists between the underlying client and MFG UK. Furthermore, under the terms of the conditional US settlement these claimants will be precluded by the court from bringing claims against MFG UK. Similar situations exist with claims submitted by clients of other introducing brokers; those claims have also been rejected. The largest rejected claim is the one submitted by the Holdings Trustee and Finance USA, who originally claimed in excess of $4 billion on a gross basis (subsequently revised to a claim for 'at least' $236 million). Update on appeals Finance USA s appeal against rejection has been put on hold pending the outcome of the conditional US settlement. The other remaining appeal is pending and discussions between the Special Administrators and the claimant are ongoing. 18

20 Update on future distributions

21 Update on future distributions Summary of the conditional US settlement On 22 December 2012, the Special Administrator s signed two key conditional agreements with the SIPA Trustee and the Chapter 11 Trustee. The conditional US settlement with the SIPA Trustee will have the following effect on the inter-company claims between MFG UK and MFG Inc once it becomes unconditional: $196.5 million of the MFG Inc claim that related to certain of the 30.7 T-bills will be treated as an Accepted Client Asset claim (as defined in the Distribution Plan). The RTM claim will be settled on the basis of MFG UK s valuation (subsequent to the Court ruling that MFG UK was the non-defaulting party); broadly this is on the basis of the Special Administrators contention that the MFG Inc claim should be treated symmetrically with the way in which the Company was closed out by the central counterparties. Further details of balances and categorisations can be obtained from the Illustrative Financial Outcomes published separately from this Report. The claims made by MFG UK into the MFG Inc estate will be accepted at amounts broadly in line with balances reported in the most recent Illustrative Financial Outcome. This amount will be set off against the MFG Inc claims with the exception of certain securities claims. The MFG UK proprietary securities in the US (estimated value as at 31 October 2011 of $68 million) will be liquidated by MFG Inc and the proceeds will be set off against amounts owed by MFG UK to MFG Inc. In addition, where possible MFG Inc will return any securities that represent MFG UK client assets (classified as Not Held Client Assets in the Distribution Plan) and MFG UK will return them to clients according to the terms of the Distribution Plan. Where this is not possible, the Not Held Client Assets will be liquidated and the funds returned to relevant clients. We shall endeavour to consult with those clients regarding this process. Various inter-company claims made by entities controlled by the Holdings Trustee into the MFG UK estate and made by the Special Administrators into entities controlled by the Holdings Trustee were also agreed. MFG UK also agreed to pay $3.2 million of costs incurred by MFG Holdings in relation to certain inter-group re-charges as an expense of the Special Administration.. 20

22 Update on future distributions Client money claimants and general unsecured creditors Payment of the second interim distribution to client money claimants and the first distribution to unsecured creditors is expected to take place in August 2013, subject to the conditional settlement agreements between MFG UK, MFG Inc, MFG Holdings and Finance USA becoming effective. Timing of distributions to Client Money claimants and general unsecured creditors In February 2013, the Special Administrators published an estimated outcome statement which indicated that subject to the Settlement Agreements between (a) MFG UK and MFG Inc; and (b) MFG UK and MFG Holdings and Finance USA becoming unconditional that the following would be achievable when declared: First interim dividend on the unsecured estate 40p in the ; Second interim distribution from the Client Money Pool 60 in the $ (ie an incremental 34 in the $). While some of the conditions to the settlement agreements have been satisfied, others remain outstanding. Among other things, the settlement agreements are conditional upon the US District Court and the US Bankruptcy Court s respective approvals of a separate settlement between JP Morgan Chase, MFG Inc, the SIPA Trustee and certain class action representatives. The hearing before the US District Court and the US Bankruptcy Court is due to take place on 3 July If approval is given on that day, the Special Administrators will then have to wait for the appeal period to the Order to expire which will occur on 2 August 2013, after which they anticipate the remaining conditions will be satisfied during August The Special Administrators intend to enter discussions with all relevant parties to ensure that the remaining conditions are met in a timely way following the expiration of the appeal period. Although the payment of a first interim unsecured distribution and any top-up distribution to the segregated client money claimants cannot practicably be made until the settlement is unconditional, the time in the intervening period is being used by the Special Administrators to pursue further asset realisations and to finalise and agree further claims. In addition to this the Special Administrators are ensuring that processes and procedures are in place to facilitate the payment of these dividends as soon as possible after the settlement becomes effective. The Special Administrators estimate that the dividends described above will be paid toward the end of August 2013, to eligible claimants. The timing of any payment to Client Money claimants is also dependent on MFG UK receiving an Order in respect of the Client Money Distribution Application (described in more detail in the Legal Issues section of the Report). The Client Money Distribution Application is scheduled to be heard on 10 June 2013 with a time estimate of 1 day, and subject to any objection, the Order could be issued shortly thereafter. Further updates on these issues will be provided in due course and the final quantum of the distributions expected to be paid in August will be updated when appropriate and published via the MFG UK website. 21

23 Update on future distributions Client money claimants and general unsecured creditors (cont.) Notice to general unsecured creditors On 28 November 2011, the Special Administrators issued a Notice of Intended Dividend to unsecured creditors of MFG UK. The Notice fixed the last date for proving at 30 April 2012, and stated that the Special Administrators intended to pay a dividend to unsecured creditors within two months of that date. On 29 June 2012, the Special Administrators issued a further notice explaining that, on account of a number of issues (including litigation with certain US affiliate companies), the Special Administrators had decided to postpone the dividend pursuant to Rules 177(1) and 177(2) until such time as the issues had been resolved. Once the settlement agreements with MFG UK s US affiliates have become unconditional, those issues will fall away and the Special Administrators anticipate being able to pay the dividend that is currently postponed. The 30 April 2012 last date for proving will still apply to that dividend, such that the Special Administrators are not obliged to deal with claims received after 30 April Nevertheless, the Special Administrators have in many cases exercised their discretion to deal with claims received since 30 April In order to be able to pay the dividend promptly after the settlement agreements become unconditional, the Special Administrators do not intend to deal with any claims received after 28 June 2013 (and indeed they reserve the right not to deal with claims received before that date). Accordingly, any creditors who have not yet lodged a claim must do so by 28 June 2013 if they wish to participate in the dividend. If there are any claims that the Special Administrators do not deal with before the forthcoming dividend, because the claims are received after 28 June 2013 or otherwise, the Special Administrators will deal with the claims after the dividend has been declared. Any such claims that the Special Administrators accept will then be paid a catch up dividend, to the extent there are funds available for distribution, before any further dividends are paid to other creditors. If you have already returned a counter-signed proposal letter agreeing the value of your unsecured claim, there is no need for you to take any further action. Similarly, if you have already submitted a creditor claim form, you need only take further action if requested to do so by the Special Administrators. Such further action could include the provision of further information requested by the Special Administrators, or the countersigning of any proposal letter sent following receipt of your claim form. 22

24 Client money

25 Client money Summary of assets Net receipts of $923.3 million have been collected by the Special Administrators; and a further $55.8 million is considered to be outstanding. Client monies received and outstanding as at 30 April 2013 $000 Received Outstanding Total Banks 464, ,729 Clearing Houses/Exchanges 443, ,600 Affiliates (a) 6,286 55,350 61,636 Other receipts/realisations (b) 15,091-15,091 Gross receipts 929,276 (c) 55,780 (d) 985,056 Re-class to house estate (5,991) - (5,991) Net receipts 923,285 55, ,065 Realisation of Client Money The Special Administrators have recovered approximately $923.3 million (Previous report: $923.0 million) of client monies held by third parties as at 30 April % of the remaining client monies to be recovered are held at Affiliate entities. The Special Administrators are in negotiation with the Affiliate entities to agree mutual claims. Note: Source: (a) Affiliates included under Clearing Houses/Exchanges in the Receipts and Payments accounts. Outstanding amounts are based on the values of claims submitted. (b) Other receipts include brokerage and account fee receipts and FX movements. (c) Shown gross of reallocations to the general estate as discussed opposite. (d) The summary may not include all amounts due to the estate. Special Administrators records. 24

26 Client money Segregated versus non-segregated determination The Special Administrators have resolved 1,026 claims classification disputes totalling $2.9 billion as at 30 April Client account classification Approximately 1,300 claimants submitted claims which conflict with the Company s classification of their accounts and their entitlement to client protection under the FCA Client Asset Sourcebook (CASS). This represents approximately 20% of all valid claims received. 1,026 of these claims totalling $2.9 billion had been resolved as at 30 April As at 30 April 2013, a further 178 claimants (with 339 accounts valued at approximately $35.0 million) had their claims accepted as client money claims. The acceptance of these claims was based on evidence provided to the Special Administrators by the various claimants. Issues being investigated The Special Administrators have taken advice from Counsel in relation to a number of issues relevant to the determination of client account classification, including the following: Whether requests to change classification from non-segregated to segregated in the last few days before the appointment of Special Administrators were sufficient to change a client s contractual position despite failing to comply with all of the Company s procedures; Whether clients who may have been miscategorised as non-retail (non-segregated) from a regulatory perspective should have their accounts treated as segregated, including the impact of re-categorisation letters that were sent out by the Company to certain clients in October 2011; Changes to client conduct and trading activity; and Various other circumstantial matters. The Special Administrators have sought further information from claimants to support their assertions that they ought to have been afforded segregated status. The current status of the account classifications are summarised below. Claimants disputing account classification as at 30 April 2013 Claimed client Claimed client Claimed creditor Total Number assets ($m) money ($m) ($m) ($m) Final classification agreed 1, , ,897 Determination issued, not agreed 174 (a) Classifications under review 130 (b) Total 1, , ,265 Final classification agreed breakdown Number Segregated 185 Non-segregated 742 Mixed 99 Total 1,026 Note: Source: (a) Includes 21 claims assigned to the FSCS and 32 claims assigned to a third party. (b) Includes 86 claims assigned to the FSCS and 12 claims assigned to a third party. Special Administrators records. 25

27 Client assets

28 Client assets Distribution Plan The Distribution Plan was approved on 18 July Since the approval of the Distribution Plan, client assets have increased to 78 million because of an increase of successful claims for the return of client assets. Client Asset Summary All Assets Held Assets Not-Held Assets (a) Total Client Asset Population Number of clients with client assets (b)(c) Number of asset holdings by client (c) 1,513 1, Total Client Asset Value at 30 October 2011 Price ( 000) 77,846 61,743 16,103 Total Costs Payable by clients ( 000) (d) 4,565 4,565 - Note: (a) See explanation on following page. (b) Some clients have both Held and Not-Held Assets. (c) Number of clients and asset holdings increased due to client asset reclassifications. (d) Amounts payable by clients include Shared Costs, Specific Costs, and settlement of encumbrances. Source: Special Administrators records. Distribution Plan Since approval of the Distribution Plan on 18 July 2012, the Special Administrators have reviewed and resolved a number of classification disputes relating to client assets. This has resulted in a number of claimants successfully proving that their assets are client assets pursuant to the term of the Banking Act Accordingly, this has increased the total value of client assets to approximately 78 million. The Distribution Plan, associated Schedules and the Order can be found in the client asset Distribution Plan section of the Special Administrators website at ClientAssetDistributionPlan.aspx. Conditional US Settlement Under the terms of the conditional US settlement $196.5 million of the MFG Inc claim that related to certain of the 30.7 T-bills will be treated as an Accepted Client Asset claim (as defined in the Distribution Plan). Communication with Client Asset Claimants Claimant Option Forms (being the form which facilitates the return of client assets to successful claimants) have been issued to all 268 successful client asset claimants set out in the Distribution Plan, listing the client assets and providing each client with a choice of whether to liquidate their client asset positions and receive the proceeds or to transfer their client assets to an alternative broker. As at 30 April 2013 the Special Administrators have identified a further 44 clients (with a total client asset value of 24 million) for which the Special Administrators hold client assets. These clients have been issued with a Claimant Option Form and their client assets will be returned in accordance with the Distribution Plan. The Special Administrators continue to review the segregation status in relation to client asset claims and should those claims ultimately prove successful, the relevant client assets will be returned to those clients under the terms of the Distribution Plan. 27

29 Client assets Distribution Plan (cont.) Assets held at MF Global Inc are currently not under the control of the Special Administrators and are classed as Not Held Client Assets. Costs In order for each client to receive their client assets they are required, under the Distribution Plan, to pay shared costs of 6.74% of the value of their client asset valuation as at 31 October This percentage will reduce substantially if the US settlement is agreed and clients will be refunded the difference shortly thereafter. Any costs paid may be the subject of a claim in the unsecured estate. Clients are also responsible for paying specific costs which relate to the specific costs incurred in transferring or liquidating their assets. Additional specific costs are being charged where clients have failed to submit their Claimant Option Forms to cover the running costs of maintaining the client asset infrastructure. Not Held Assets Certain client assets are currently classed as Not Held Client Assets. Such assets are currently held by MFG Inc, and are currently not under the control of the Special Administrators. Therefore creditors are not entitled to a distribution of these assets, unless and until such Client Assets are returned to the Special Administrators. If the conditional US settlement finalises in the expected timeframe, as discussed earlier in this Report and the Client Assets are returned to the Special Administrators we will contact the relevant clients in due course to enable them to arrange for their preferred method for their return. 28

30 Client assets Asset return summary To date client assets worth 38.6 million, representing 62.7% of the value of all held client assets, have been returned. As at 30 April 2013, 36.9% of the Claimant Option Forms remained outstanding with clients. Returned Client Assets Returned Client Assets Total Held Assets Successfully Returned Client Assets Percentage of Assets Returned Holdings Transferred Holdings Liquidated Holdings Other (a) Number of Holdings 1, % Value of Holdings Returned 61,743 38, % 31,986 2,772 3,932 (at 30 October 2011 prices ( 000)) Note: (a) Holdings Other. Includes partial liquidation and transfers, delisted stocks, renunciations and maturities of bonds. Source: Special Administrators records. The Special Administrators have returned 872 (82.0%) held client asset holdings to clients, 82.7% of which have been in the form of a transfer to an alternative broker. Response Rate As at 30 April 2013 all clients who are deemed to have client assets should have received a Claimant Option Form (being the form which facilitates the return of client assets to successful claimants). To date, 36.9% of those claimants with held assets have yet to return their Claimant Option Forms to the Special Administrators. If client asset claimants fail to give the Special Administrators the required instructions to enable them to return the client assets by returning the Claimant Option Form and or fail to pay the relevant costs associated with (or settle any encumbrances over) those assets, the Special Administrators may seek guidance from the Court on how to deal with the affected client assets and claimants may ultimately lose their ability to have their client assets returned. Accordingly, the Special Administrators urge any client who has not completed and returned the Claimant Option Form to do so as soon as possible. 29

31 House estate

32 House estate Summary of assets As at 30 April 2013 the Special Administrators had recovered 1.07 billion of non-segregated assets. The Special Administrators continue to work with the Affiliates to agree intercompany claims and a process for the return of these amounts as expediently as possible. Non-segregated monies received and outstanding as at 30 April Received Outstanding Total Banks (a) 504, , ,226 Clearing Houses/Exchanges (a) 470,838 50, ,475 Affiliates 1,691 11,398 13,089 Other receipts/realisations (a)(b) 96,790 68, ,132 Total 1,073, ,099 (c) 1,356,922 Note: (a) Includes reallocations from the CMP as detailed on page 24. (b) Other receipts include the LME and LSE share sales, tax, dividend and interest income, brokerage and account fee receipts and FX movements. (c) The summary may not include all amounts due to the estate. Source: Special Administrators records. Non-segregated assets The Special Administrators had recovered 1.07 billion (Previous report: 1.0 billion) of non-segregated assets in the estate as at 30 April The 72 million of recoveries made into the non-segregated estate since the Special Administrators previous report have been received as follows: 49 million from banks; 4 million from clearing houses and exchanges; and 19 million from other sources (tax receipts, brokerage and account fees, dividend and interest income and FX amounts). ATT assets Where ATT claimants have agreed their ATT claims as house assets and the assets have been liquidated, the funds returned to the general estate have been included under amounts received. Where ATT claimants are yet to agree the status of the assets these assets are included in the amounts outstanding. 31