Alternative Links: “We Basically Controlled the Oil World”

Crude Oil:

“We basically controlled the oil world,” said  Al Kaplan, former president of Phibro’s energy unit. Mr Kaplan. “It was quite amazing. We had very good people. There was no price dissemination, so we used to tell people what the price was.”

Rise and Fall of a Commodities Powerhouse – (FT)

3 reasons for oil’s crazy bounce – (MarketWatch)

7 Technical Indicators to tell when the Crude Sell Off is Done – (Attain Alternatives Blog)

Managed Futures:

[Read more…]

PFG Update: Settlement Offer for FX Customers

Some interesting news out of the PFG bankruptcy case, with the court approving a settlement offer of 30 cents on the dollar from the trustee to a single forex customer, which in turn opens the offer up for any and all FX customers. The legalese:

“Accordingly, based on the reasons set forth in the Motion2, the Court authorized Ira Bodenstein, the chapter 7 trustee (“Trustee”) for the bankruptcy estate of Peregrine Financial Group, Inc. (“PFG”), to settle the Forex and OTC Metals Claims pursuant to certain terms and conditions (the “Settlement”).

The terms of the Settlement are that any Forex or OTC Metals Claimant (collectively, “Forex Claimant”) may choose to receive a onetime payment equal to thirty percent (30%) of their Allowed Forex and/or OTC Metals Claim3 (the “Settlement Payment”) on account of such Forex and/or OTC Metals Account (collectively, the “Forex Account”), in full and complete satisfaction of such Claim, specifically including the waiver of any further claim respecting such Forex Account against the bankruptcy estate of PFG.”

If you’ve gotten some calls and emails this morning from the ‘claim buyers’ offering 10% on Forex claims (up from 0%), that’s because they know they can flip it for 30%. Don’t fall for it.

Digging a little deeper here – this settlement offer is interesting because the letter of the law pretty clearly states that FX customers are not commodity customers as that term is defined under the Commodity Act (i.e. – not afforded the same protections in the case of an FCM bankruptcy), and the judge did grant summary motion to the trustee dismissing the claim against the estate which would have treated them as customers.

But, the settlement is a bit of a nod to the fact that they were treated like customers and they did believe they were customers, which further muddies the water on how these customers should be treated under the law. CFTC – where are you on this?  I’m sure the 10s of thousands of forex customers throughout the industry would appreciate some clarity on just what is exactly supposed to happen to their funds in the case of their broker going bankrupt.

As for futures customers – we see this moving down our estimate of a 55% recovery before any class action suit recoveries, a bit to about 53%. And of course, we continue to root on the CFTC in their lawsuit with US Bank.

PFG Update: J.P. Morgan to Pay $15 Million

Some good news for former PFG customers today, as the PFG trustee Ida Bodenstein is requesting the bankruptcy judge approve a $15 Million settlement with the bank. Here’s what the court document states:

“(ii) Obtain the release of $14,000,000 for the Estate, which is currently being held by JP Morgan as a security for JP Morgan’s contingent claims against the estate.”

“(iii) Resolve the Estate’s and the Customer’s Representative Plantiff’s claims against JP Morgan in exchange for cash consideration of $1,250,000 from JP Morgan, which is in addition to the reduction and cap on JP Morgan’s claims and the eventual release of the funds held as security for those claims.”

“(iv) implement a cooperative course of proceeding with the Customer Representative Plaintiffs with respect to (a) the claims against the remaining defendants in the class action and (b) the disbursement of any proceeds under the Settlement Agreement and an account of the remaining claims in the class action proceeding.”

In layman’s terms, JP Morgan is agreeing to pay $1.25 Million to settle any claims against it by the customers, and release $14 Million in customer money it’s been holding as collateral against what we would call ‘phantom’ claims against PFG.  It’s a far cry from $200 million, but it is another victory for former customers and step towards getting entirely whole.

For JP Morgan, this is a drop in the bucket… or whatever is less than that. Last year they paid almost $13 Billion to the Justice Department in fines, and before that paid $100 Million in its connection to MF Global.  Jamie Dimon’s secretary probably makes more than the $1.25 million they agreed to pay.

Now if the lawyers at US Bank could just agree to settle with the CFTC in its lawsuit, everyone would be happy.

Managed Futures Linkfest


  • Hedge Fund Fail-Mates – (AI CIO)
  • Top Managed Futures Performers of January – (Attain)


  • Corzine Seeks Dismissal of U.S. Claims Over MF Global’s End – (Bloomberg News)
  • Trustee Seeks to Question Peregrine’s Imprisoned Founder – (the Wall Street Journal)
  • CME Group fines traders for transactions that worried regulator – (Reuters)

Education & Insight:

  • Overlaying Strategies in Managed Futures: Does it Assist an Investor? – (Mark Shore)
  • Macro/CTA Net Exposure Falls: The Long And Short Of It All – (Value Walk)
  • A new educational futures website  – (CME)
  • An inforgraph claiming Managed Futures Legends as “Wall Street Bulls” – (Reformed Broker)

Futures Markets and Miscellaneous:

CTA’s and CPO’s: Vote for Bry and Jaffarian

One of the few good things to come out of the MF Global and PFG scandals in the futures industry was a renewed interest in good people trying to get involved with the National Futures Association at the Board of Director level – (the other would be the various customer protections since put in place).

Two such good eggs are Doug Bry and Ernest Jaffarian, who were concerned enough about the industry response to MF Global that they petitioned to get placed on the ballot for NFA Director to do something about it (before that, nobody had ever been elected via such petition – since that, James Koutoulas, John Roe, and Attain’s own Jeff Malec were all elected via petition).

Well, they’re now facing a contested election, and we at Attain would like to see them continue the efforts and work that are underway to bring needed reforms to NFA.

Doug and Ernest are owners of dedicated futures firms running against two lawyers from hedge fund giants AQR and Citadel. Don’t get us wrong, the two contenders are extremely well qualified – nearly to the point of being over qualified.  But being a registered CTA and CPO ourselves – We would rather have the people who do 100% futures and whose main business lines are running a CTA and CPO, than the people who do futures as just a part of a global investment company empire.  It also occurs to us that the AQRs and Citadels of the world will make their mark on the futures industry whether in this role or not. AQR’s rep is heavily involved with the Managed Funds Association, for example.

So our recommendation is to go with the guys who’ve been there on the job for the past two years, and who have gained some momentum in the role. Our recommendation is to vote for Douglas Bry and Ernest Jaffarian. But more than anything,  please take the time to vote for your representative to the NFA Board of Directors. You don’t get to complain about the regulations if you don’t vote!

Related:  Commodity Customer Coalition Recommendation for Bry and Jaffarian

PFG Update: Customers (finally) Getting More Money

Just in time for the holidays, former customers of Peregrine Financial are getting a long awaited stocking stuffer. The PFG trustee announced today that they had filed a motion to return more money to former PFG Customers:

“…in an amount up to $41 million as follows: (i) with respect to 4d Customers, approximately seven percent (7%) ($27.5 million) of the 4d Customers’ account balances, and with respect to 30.7 Customers, approximately forty-five percent (45%) ($13.5 million) of the 30.7 Customers’ account balances. If the motion is approved, the total interim distributions made to 4d Customers and 30.7 Customers will be approximately thirty-seven percent (37%) and eighty-five percent (85%) of their Allowed Futures Claims, respectively.”

All around, this is welcoming news, as any money getting back to its rightful owners is a definite step in the right direction; but did Mr. Bodenstein have to shoot so low?

The 30.7 balances (the amount of money held by customers in foreign currencies to trade futures on foreign exchanges) have more than enough money to make them whole, and Mr. Bodenstein himself said ““We anticipate that they’ll get close to all their money,”, but this distribution only takes them to 85% whole. If there’s a surplus there, why hold back 15%.  And those with 4d balances (the bulk of the PFG business), are only getting another 7%, when that could have easily been as high as 20% by our estimates.  So what’s the hold up?  In our best Rounders accent – “Pay that man his money.”

The motion hearing is scheduled for next Wednesday (December 18th) In Chicago, and there doesn’t seem to be any reason for the judge to deny it; meaning customers could be getting a check before the banks are closed for Christmas, and should be getting one by the end of the year.


PFGBest One Year Later

PFG posts


Futures Industry Sausage Making

It’s been a hell of a day on Twitter, what between @ZeroHedge, et al quoting The Bernank (that never gets old);@ReformedBroker livetweeting the delivering alpha conference as only he can, and the futures industry’s own @JamesKoutoulas and @JohnLRoe live tweeting the senate hearings on the CFTC reauthorization under the CEA (Commodity Exchange Act).

Now, Senate hearings are notoriously boring – where nobody outside of Daily Show interns really watch CSPAN, and while today was  a little too much info on how the sausage is made for your regular futures market investor – we’re not going to lie – we sure enjoyed futures getting the spotlight in D.C. in a way not directly related to PFG or MF Global (although those subjects surely came up).

Some of the best commentary came from Terry Duffy, executive chairman of uber futures exchange: CME, talking swap rules, the proposed residual interest rules, customer account insurance, and the CFTC being self funded. Duffy highlights per Mr. Koutoulas:

“CFTC swap rules often overstep their bounds & undermine swaps market ability to do biz.”

“subordination [of all FCM debt to customers] could hurt small FCMs ability to get financing”

“customers should have option to pay for insurance, but mandating it would crush the industry”

“oil’s been $90-$110 for 3 years. You got the wrong panel if you want to blame futures for price spikes

“self-funding would result in higher food prices, market being less competitive”

“[HFT mini flash crashes] only happen on securities markets since they don’t have a central liquidity pool”

But the elephant in the room is the proposed customer protection rule which has become known as the ‘residual interest’ rule. This rule would in effect shift the model from the FCM’s having 5 days to get the necessary margin amount from a customer on margin call (and able to bridge those 5 days with their own funds and the collective funds of all other customers on their books), to a model where the FCM has to have a sort of ‘bad debt’ allowance set aside in real time for any margin amount taken on by any customer.  The FCM’s say this has the implications of shattering the 50+ year system in place, and require them to have much larger margin requirements for each customer (essentially making it so no customers go on call), creating a much more expensive market  for FCM’s and customers alike.

Duffy hit the point in his prepared comments, saying according to Bloomberg:

“if a proposed ‘protective’ measure is so expensive or its impact on market structure is so severe that customers cannot effectively use futures markets to mitigate risk or discover prices, the reason to implement that measure needs to be re-examined,”

Would this really protect customers?  We’re not so sure. In theory, it improves the stability of segregated funds account by keeping closer tabs on the risk other clients bring to the collective segregated funds structure, but we don’t think the rule would have prevented MF Global or PFG.  As far as FCM’s are concerned – Mr. Duffy may have said it best:

“we don’t need any additional changes, we’ve done a ton to improve protections already. Just do a 1 line CFTC reauthorization”