Investors of failed stockbroker MF Global may be due a top-up compensation payment from the Financial Services Compensation Scheme following a recent High Court decision, which cited a £35m shortfall in liquidation values.
In the judgement, Mr Justice David Richards ruled that “decreased clients” - a term used to refer to one of two defined groups of clients that were deemed to have lower-value claims - were entitled to prove their “excess shortfall”.
At the end of October 2011, MF Global UK was put into the special administration programme, with the 31 October set as the valuation date for claims against the client money trusts. Those clients whose open positions closed after this date with a liquidation value less than their market value at the valuation date were defined by the court as ‘decreased clients’.
Their total market values were approximately $359m (£222.3m) and their total liquidation values were approximately $301.4m (£186m), resulting in a net decrease of a little over $57.6m (£35m).
‘Increased clients’, those with net open positions as at 31 October 2011 which later closed with a liquidation value greater than the market value as at that date, had a total market value of approximately $266.8m (£165m) and their total liquidation values a little over $277m (£171m), resulting in an increase of approximately $10.2m (£6.3m).
The FSCS said in a statement that it is “aware” that some customers of MF Global may be due a top-up compensation.
The FSCS said: “We have been working closely with the special administrator, KPMG, and have now received some data relating to top-up compensation and associated dividend payments. However, because of the complex nature of the calculations, it may take some time to determine what payments, if any, are due to individual investors.
“We appreciate this is a priority for MF Global customers, and would like to assure you that we are doing all we can to speed up the process. We will aim to provide more certainty about these payments in the next two weeks.”
MF Global is one of four firms to enter the special administration scheme. previously placed into the regime since the regulations came into force in February 2011 were Fyshe Horton Finney Stockbrokers, Worldspreads Ltd and Pritchard Stockbrokers Ltd.
The ‘special administration regime’ came into effect in February 2011. In December 2012, HM Treasury announced that it is launching a review of the regime, looking into whether the regulations achieve their objectives and whether they should continue to take affect.
