The Canadian Investor Protection Fund (CIPF) will temporarily provide up to $40-million for customers of bankrupt brokerage firm MF Global Canada Co. to tide over investors who have funds that remain entangled in the bankruptcy proceedings of the firm's U.S. parent.
Rozanne Reszel, president and chief executive officer of CIPF, said that while the roughly $400-million in net assets in Canadian client accounts have been "all accounted for" by bankruptcy trustee KPMG Inc., "there are certain assets that are not currently accessible." These are assets residing in parent MF Global Holdings Ltd.'s U.S. and British operations, which have been in the hands of court-appointed administrators since MF Global Holdings declared bankruptcy Oct. 31.
With KPMG having reached an agreement to transfer most of MF Global Canada's customer accounts to RBC Dominion Securities, Ms. Reszel said the trustee "requested short-term liquidity of up to $40-million in order for those transfers to occur," rather than incur more delays waiting for the funds tied up in the U.S. and Britain to become available. CIPF's board approved the request.
MF Global Canada's clients have had their accounts essentially frozen since Nov. 1, when the Investment Industry Regulatory Organization of Canada (IIROC) suspended the company's trading privileges in the wake of the bankruptcy of its U.S. parent. Three days later, CIPF obtained a bankruptcy order for MF Global Canada, paving the way for the appointment of KPMG as trustee to identify customer assets and arrange for them to be transferred to another financial institution.
Ms. Reszel said that once those U.S. and British funds are freed up, CIPF would be reimbursed for any amounts KPMG draws down under the liquidity request. In the court ruling Monday that approved the bulk transfer of accounts to RBC Dominion, CIPF was granted top priority among creditors to recover whatever funds it provides to KPMG to distribute to customers.
Ms. Reszel said CIPF would fund the liquidity requirements out of its $400-million "liquid bond portfolio" – the nest egg the industry fund has accumulated to backstop investor losses in the event of an insolvency of a CIPF member firm, such as MF Global Canada. She said that in addition to the fund's bond portfolio, it also has a $100-million credit line and an insurance policy that would pay off $116-million in the event the fund had to pay out $100-million or more in a member insolvency.
Meanwhile, KPMG reported that it has already begun transfers of MF Global Canada's futures, equity and fixed-income accounts to RBC Dominion, but "due to the volume of accounts being transferred, it will take a couple of days to transfer all of the accounts included in the bulk transfer agreement."
RBC Dominion will contact MF Global Canada clients this week, and the brokerage firm has said that it is aiming to restore clients' access to all the accounts by the end of the week. Clients should contact KPMG if they haven't heard from an RBC Dominion representative by Friday, the trustee advised.
David Parkinson