mf global

Any opinions on the following email from my broker , outlinig some changes and a warning to its financial structure/debt limits.

email
As a valued client we want to bring to your attention certain recent public announcements regarding MF Global. MF Global is the ultimate parent company of MF Global Australia Limited (MFGA), your CFD provider. Please note that this letter does not constitute advice. You should consider your own investment objectives, financial situation and particular needs before making decisions in relation to trading in CFDs.

The current situation
The MF Global debt rating status has been considerably reduced as reported through Bloomberg News. See report http://www.bloomberg.com/news/2011-10-27/mf-global-is-said-to-have-exhausted-all-of-its-bank-credit-lines-this-week.html

The share price of MF Global has fallen this week. See report http://www.bloomberg.com/news/2011-10-27/mf-global-is-said-to-have-exhausted-all-of-its-bank-credit-lines-this-week.html

You may wish to refer to sections 7.3 and 7.4 of the Product Disclosure Statement (PDS) which outlines how client funds are held. For your convenience, we have copied part of section 7.3 below (from page 25 of the PDS):

MFGA will handle all client funds its receives in accordance with, and subject to, the requirements of Part 7.8 Division 2 the Corporations Act. Where required by the Corporations Act, client funds will be paid into a segregated account maintained by MFGA with an Australian bank.

MFGA is entitled to withdraw client funds from the segregated account in the circumstances and for the purposes set out in the Corporations Act. For example, if you incur a Margin obligation to MFGA, you will be required to pay those Margin amounts to MFGA and your client funds will be used to make that payment. Also, MFGA is entitled to use client funds it receives in connection with CFDs (which are derivatives) for the purpose of meeting obligations MFGA incurs in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by MFGA, including dealings on behalf of other clients and, for example, to meet obligations MFGA incurs in respect of its derivatives hedging activities it undertakes to hedge its exposure to you and other clients in relation to CFDs.

Also, under the CFD client agreement you authorise MFGA to deduct from the segregated account money to which you are entitled, for the purposes of discharging obligations which MFGA incurs to MFGA’s Hedge Counterparty to hedge its exposure to the Client in connection with CFDs or to hedge its exposure to other clients who have entered into CFDs with MFGA under agreements similar to the CFD client agreement.

For example, even though you may deposit $10,000 with MFGA and yourself incur Margin obligations to MFGA of $4,000, some or all of the remaining $6,000 may have been used by MFGA to meet obligations it incurs in respect of its derivatives hedging activity. For a further discussion in relation to MFGA’s hedging activities and the use of client funds see sections 7.3 and 7.4 of this PDS.

It is therefore important for you to note that even though your money may be paid into one or more segregated accounts, this may not afford you absolute protection. First, within the segregated account, all client funds are pooled together and so an individual client balance may not be protected if there is a default in the overall segregated account balance. Secondly, if you have incurred Margin obligations to MFGA, your client funds will be paid to MFGA to meet those obligations. Thirdly, to the extent that MFGA has used client funds to meet obligations incurred by MFGA in respect of its hedging activities referred to above, there is an exposure to counterparty risk in relation to both MFGA and, indirectly, to its Hedge Counterparty, in relation to those funds. For these reasons you are exposed to the risk that you may not receive all money to which you are entitled if there is a deficit in the client money account and MFGA becomes insolvent or is otherwise unable to pay any amount owing to you.
ends.