THE COLLAPSE OF MF GLOBAL, PART 1 HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION DECEMBER 15, 2011 Printed for the use of the Committee on Financial Services Serial No. 112–94 ( U.S. GOVERNMENT PRINTING OFFICE 72–635 PDF WASHINGTON : 2012 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\72635.TXT TERRIE HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice Chairman BARNEY FRANK, Massachusetts, Ranking PETER T. KING, New York Member EDWARD R. ROYCE, California MAXINE WATERS, California FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York RON PAUL, Texas LUIS V. GUTIERREZ, Illinois DONALD A. MANZULLO, Illinois NYDIA M. VELA´ ZQUEZ, New York WALTER B. JONES, North Carolina MELVIN L. WATT, North Carolina JUDY BIGGERT, Illinois GARY L. ACKERMAN, New York GARY G. MILLER, California BRAD SHERMAN, California SHELLEY MOORE CAPITO, West Virginia GREGORY W. MEEKS, New York SCOTT GARRETT, New Jersey MICHAEL E. CAPUANO, Massachusetts RANDY NEUGEBAUER, Texas RUBE´ N HINOJOSA, Texas PATRICK T. MCHENRY, North Carolina WM. LACY CLAY, Missouri JOHN CAMPBELL, California CAROLYN MCCARTHY, New York MICHELE BACHMANN, Minnesota JOE BACA, California THADDEUS G. McCOTTER, Michigan STEPHEN F. LYNCH, Massachusetts KEVIN McCARTHY, California BRAD MILLER, North Carolina STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia BILL POSEY, Florida AL GREEN, Texas MICHAEL G. FITZPATRICK, Pennsylvania EMANUEL CLEAVER, Missouri LYNN A. WESTMORELAND, Georgia GWEN MOORE, Wisconsin BLAINE LUETKEMEYER, Missouri KEITH ELLISON, Minnesota BILL HUIZENGA, Michigan ED PERLMUTTER, Colorado SEAN P. DUFFY, Wisconsin JOE DONNELLY, Indiana NAN A. S. HAYWORTH, New York ANDRE´ CARSON, Indiana JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut ROBERT HURT, Virginia GARY C. PETERS, Michigan ROBERT J. DOLD, Illinois JOHN C. CARNEY, JR., Delaware DAVID SCHWEIKERT, Arizona MICHAEL G. GRIMM, New York FRANCISCO ‘‘QUICO’’ CANSECO, Texas STEVE STIVERS, Ohio STEPHEN LEE FINCHER, Tennessee LARRY C. LAVENDER, Chief of Staff (II) VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\72635.TXT TERRIE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS RANDY NEUGEBAUER, Texas, Chairman MICHAEL G. FITZPATRICK, Pennsylvania, MICHAEL E. CAPUANO, Massachusetts, Vice Chairman Ranking Member PETER T. KING, New York STEPHEN F. LYNCH, Massachusetts MICHELE BACHMANN, Minnesota MAXINE WATERS, California STEVAN PEARCE, New Mexico JOE BACA, California BILL POSEY, Florida BRAD MILLER, North Carolina NAN A. S. HAYWORTH, New York KEITH ELLISON, Minnesota JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut FRANCISCO ‘‘QUICO’’ CANSECO, Texas JOHN C. CARNEY, JR., Delaware STEPHEN LEE FINCHER, Tennessee (III) VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\72635.TXT TERRIE VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\72635.TXT TERRIE C O N T E N T S Page Hearing held on: December 15, 2011 ........................................................................................... 1 Appendix: December 15, 2011 ........................................................................................... 87 WITNESSES THURSDAY, DECEMBER 15, 2011 Abelow, Bradley, Chief Operating Officer, MF Global ......................................... 11 Baxter, Thomas C., Jr., General Counsel, Federal Reserve Bank of New York ....................................................................................................................... 59 Berkovitz, Dan M., General Counsel, Commodity Futures Trading Commis- sion (CFTC) ........................................................................................................... 50 Cook, Robert, Director, Division of Trading and Markets, U.S. Securities and Exchange Commission (SEC) ....................................................................... 52 Corzine, Hon. Jon S., former Chief Executive Officer, MF Global ...................... 10 Duffy, Terrence A., Executive Chairman, CME Group Inc. ................................. 54 Ketchum, Richard G., President, Chairman, and Chief Executive Officer, Fi- nancial Industry Regulatory Authority (FINRA) .............................................. 55 Kobak, James B., Jr., Chief Counsel to James Giddens, Bankruptcy Trustee for MF Global, Inc. ............................................................................................... 57 APPENDIX Prepared statements: Abelow, Bradley ................................................................................................ 88 Baxter, Thomas C., Jr. ..................................................................................... 91 Berkovitz, Dan M. ............................................................................................ 107 Cook, Robert ...................................................................................................... 115 Corzine, Hon. Jon S. ......................................................................................... 126 Duffy, Terrence A. ............................................................................................ 148 Ketchum, Richard G. ........................................................................................ 153 Kobak, James B., Jr. ........................................................................................ 159 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Neugebauer, Hon. Randy: Letter from CME Group dated December 13, 2011 ....................................... 164 King, Hon. Peter T.: Written statement of Tariq Zahir, Managing Member, Tyche Capital Ad- visors LLC ..................................................................................................... 184 Abelow, Bradley: Written responses to questions submitted by Representative Posey ........... 185 Corzine, Hon. Jon S.: Written responses to questions submitted by Chairman Neugebauer and Representative Posey .................................................................................... 187 Duffy, Terrence A.: Written responses to questions submitted by Representative Posey ........... 189 Kobak, James B., Jr.: Written responses to questions submitted by Representative Posey ........... 191 (V) VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\72635.TXT TERRIE VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\72635.TXT TERRIE THE COLLAPSE OF MF GLOBAL, PART 1 Thursday, December 15, 2011 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 1:08 p.m., in room HVC–210, Capitol Visitor Center, Hon. Randy Neugebauer [chair- man of the subcommittee] presiding. Members present: Representatives Neugebauer, Fitzpatrick, King, Pearce, Posey, Hayworth, Renacci, Canseco, Fincher; Capu- ano, Lynch, Baca, Miller of North Carolina, Himes, and Carney. Ex officio present: Representative Frank. Also present: Representatives Hensarling, Royce, Garrett, Luetkemeyer, Huizenga, Dold, Grimm; Green and Perlmutter. Chairman NEUGEBAUER. The subcommittee will come to order. I remind Members that we previously agreed there will be 10 min- utes of opening statements on each side. I ask unanimous consent that members who are on the Financial Services Committee—but not on the Oversight Subcommittee—who have joined us today will be entitled to participate: Mr. Hensarling, Mr. Royce, Mr. Garrett, Mr. Luetkemeyer, Mr. Huizenga, Mr. Dold, Mr. Grimm, Mr. Green, and Mr. Perlmutter. Without objection, it is so ordered. What we are going to try to do is do the Members’ opening state- ments. We may have an opportunity for the witnesses to give their opening statements. But we are told that somewhere around 1:30, we may have a series of votes. We think there are three or four votes in that series. We were going to try to continue the hearing during that period, but it looks like that would be difficult to do since there are three or four votes. So I think the best thing for the committee to do, unless the ranking member has a different idea, is for us to adjourn briefly, go make those votes, and then come back. I also ask unanimous consent that if any other members of the Financial Services Committee arrive, they be allowed to be a part of the hearing as well. At this time, I will now recognize myself for an opening statement. This is a very important hearing. We are here to find out exactly what happened at MF Global and with their bankruptcy. I think we want to accomplish three things in this hearing. Num- ber one, we are very alarmed, and a lot of people are alarmed that we still have customers’ funds that are missing. And that number (1) VerDate Nov 24 2008 18:25 Jul 16, 2012 Jkt 072635 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\72635.TXT TERRIE 2 jumps around anywhere from over $1 billion to a number less than that. It is very disturbing. This is very historic that these funds, segregated funds—I think it is the first time since the law was put in place