MF Global Holdings Ltd., the futures broker that filed the eighth-largest bankruptcy in October, faced a $310 million margin call on its final day that exceeded its market value.

Calls for payments tied to bets MF Global made on European sovereign debt increased Oct. 24 and continued through Oct. 31, the day the futures broker formerly run by Jon Corzine filed for bankruptcy protection, according to a report yesterday from James Giddens, a trustee overseeing the brokerage’s liquidation. MF Global had a market value of $198 million on Oct. 28 as it held $6.3 billion in European sovereign-debt trades.

After tracing 840 transactions of $327 billion in the company’s final days, Giddens is still analyzing where some of the $1.2 billion in missing customer money “ended up,” he said in the report. Corzine’s firm failed after credit-rating downgrades, a record quarterly loss and revelations about its $6.3 billion European debt trade unnerved investors. The missing money has sparked Congressional hearings and former customers have said it undermined confidence in the futures industry.

“For three months, our investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions,” Giddens said in a statement.

Contingency Plan

The trustee didn’t disclose the identity of the counterparties making the margin calls. The trades were cleared through LCH.Clearnet Ltd., according to an MF Global contingency plan drafted before its failure. In the plan, which was designed to address the effects of a credit-ratingdowngrade on the company’s solvency and liquidity, MF Global questioned whether it should move the debt trades out of LCH.Clearnet.

“How will LCH respond, how much in excess margin will be required, time period, can/will they force us out?” the brokerage questioned in a section of the plan titled “immediate decision making required.” The undated plan indicated the company could move some of the cleared positions to the over- the-counter market, where it could get more favorable terms.

Congress, the Commodity Futures Trading Commission, Securities and Exchange Commission and the Justice Department are investigating events surrounding the collapse of MF Global, including the disappearance of the customer funds.

Corzine, 65, helped run Goldman Sachs Group Inc. from 1994 to 1999. A Democrat who served in the Senate and as New Jersey’s governor, he testified three times in December before congressional panels probing the brokerage’s failure. A hearing last week focused on the role of risk officers and credit-rating firms in the run-up to the collapse.

Repo Transactions

The two biggest margin calls were for $108.8 million on Oct. 26 and $309.6 million on the day of the collapse.

The sovereign-debt trades were so-called repurchase-to- maturity transactions, where MF Global used borrowed money to invest in the debt of Ireland, Italy, Spain, Belgium, and Portugal. At the same time the brokerage was increasing the size of its bet last year, investors were becoming increasingly concerned that the countries, along with Greece, wouldn’t be able to finance their debt as economic conditions worsened.

The futures broker often moved money between its own accounts and those of customers in amounts of less than $50 million a day, replacing the cash by day’s end, according to the trustee’s report.

As cash demands on the firm surged in the last week of October, “much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day,” according to the report. Starting Oct. 26, “funds did not return as anticipated,” the trustee said.

Operationally Distinct

“The very practice of reaching into the same account doesn’t sound prudent to me,” Darrell Duffie, a finance professor at Stanford University, said of the mingling of customer and firm money. Customer cash should be operationally distinct from any funds belonging to a futures broker, he said.

The company reported it was segregating more than the required $6.75 billion in customer funds on Oct. 25, according to a chart included with the trustee’s report.

Starting the next day, that surplus evaporated, with the amount of segregated funds falling to about $4.5 billion by Oct. 28, less than the $5.5 billion required. The trustee’s investigation covers 47 bank accounts at eight financial institutions, according to his report.

MF Global had its credit rating cut to junk on Oct. 27 by Moody’s Investors Service and Fitch Ratings as its shares plunged and bonds began trading at distressed levels amid a crisis of investor confidence over the Europe trades.

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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