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MF Global (Singapore) Bankruptcy Saga – Can Investors Get Back Their Money?

The New Paper wrote about the MF Global bankruptcy on 5th Nov. It interviewed David Gerald, president of the Securities Investors Association (Singapore). Here’s the Q&A and I have underlined some of the more important points:

What is the worst-case scenario for investors affected by the shut down of Wall Street brokerage MF Global and its Singapore arm?

Many customers opened accounts with MF Global in order to trade multiple products in multiple countries.

In order for such trades to be executed smoothly, monies would have been placed in various jurisdictions (countries) and exchanges (stock exchanges).

As a result, time is necessary to determine where all the relevant monies are located, then repatriate all monies back to Singapore as soon as possible.

Only then, can an orderly distribution of monies back to all clients begin.

As a MF Global is a holder of a Capital Markets Services (CMS) license, it is obliged to segregate the monies and assets of its customers from its own monies and assets under the Securities and Futures Acts.

Nevertheless, given the global nature of its business, it will take some time to locate and repatriate the monies back to Singapore, and distribute to customers.

What lessons can investors learn from MF Global, especially when an Internet connection is all you need to invest and manage your own money?

With the ease of opening trading accounts and trading globally today, investors must be aware of jurisdictional issues.

While MF Global Singapore is a CMS license holder and has to abide by the Securities and Futures Act, I am aware that some investors are trading on platform which are not CMS license holders and thus, do not have the protection of the laws in Singapore.

Needless to say, investors would have a harder time recovering their monies, in what we understand, is an already complicated task. 

— end of interview —

From what I understand and interpret from the interview, clients who have money with MF Global Singapore should be able to get back their money BUT it will take some time.

This incident serves as a reminder on counterparty risk. If you deposit your money with a broker, that broker is the risk you have to undertake. Under such uncertain economy nowadays, the broker could fail and go bankrupt and your money will be gone as well.

Although MF Global is MAS-regulated, it doesn’t mean it’s fool-proof. You never know what they will do with the money behind the tables. In other words, know the risk and don’t deposit large sum amount of money with a broker. Of course, “large sum” is relative.

There was a lady who deposited her life savings of more than $100,000 into MF Global (as reported in Straits Times). Her open positions could not be closed and it seems that she had incurred $40,000 in losses. A broker is NOT a bank. A bank can also fail, let alone a broker!?!? You don’t deposit ALL your money with them. Know what you can afford to lose and use some common sense too.

However, it also doesn’t mean you should stay clear from trading CFD completely from now on.

Just like there are always accidents on roads. It doesn’t mean you stop walking on pavements and stop driving completely. There will always be people who fell in bathrooms, that doesn’t mean you don’t step into your bathroom ever, right?

Due diligence please…

My First Ever Trade

I traded using CFD (contracts for difference) for the first time in my life using my own real money.

Counter: Sembcorp (Long)
Open: 14 Jul 2011
Close: 25 Jul 2011
Entry: $5.00
Exit: $5.08

sembcorp-trade

(click on the picture for a bigger view)

What did I trade and why?

Candlestick:

  • Bullish reversal hammer on 12 Jul, followed by a white candle stick closing higher above hammer’s real body on next day.

Indicator:

  • 20 EMA: Price is at MA
  • Stochastic in middle. Not overbought or oversold region.
  • MACD just going to cut signal line from top.
  • High volume on the hammer day
  • Chart pattern: N.A.

Thoughts, Feelings & Action

Trade solely based on candlestick signal. High volume on hammer day may signal the end and the start of uptrend reversal.

Market was very volatile for the past few days. Euro’s Italy debt problem causes the market to plunge on 12 Jul. The following day was bullish due to good news from China’s growth.

Very uncertain. Don’t  know where the market is heading. Traded for the 1st time in my life using my own money.

Where is your stop and limit and why?

Entry: $5.00
Stop: $4.88

Set stop loss just below the previous day’s low

Updated: As price rises, adjusted stop loss at $4.08

Did the trade work out as planned?

Due to the US debt ceiling not solved and stalled, the overall market falls on Monday.

Price gaps down from $5.14 to $5.10. Since the ATR is about $0.10, there is a very high chance that my stop loss will be hit. True enough, my stop loss was soon hit at $5.08.

I was expecting the price to continue move up towards the upper channel but market sentiment was not good. But overall I am still satisfied with the trade as it was my first ever trade using my real money and it ends up a positive one.

The 2 Doji formed may not be a good sign, so it might be wise to get out too.

As I am very new to trading, I don’t expect to make big money. I am in it to learn first. My #1 goal now is to protect my capital. With more learning, more experience, I am sure the money will come later.

I also have a proper trading record and trading diary. A disciplined trader WILL BE a successful trader.