MF Global took a large proprietary bet on European sovereign debt through repo-to-maturity trades. As the position moved against it and margin calls mounted, customer money held under segregated-funds rules was used to meet them. The firm filed for bankruptcy on 31 October 2011 and customers discovered their balances were not there.
Most of the shortfall was eventually recovered through litigation, but accounts were frozen for months and many traders were forced out of positions at the worst possible time. The episode drove new rules requiring daily segregation reporting and chief executive sign-off on customer fund calculations.
The practical lesson is that segregation is a legal promise, not a vault. Broker credit quality is a real risk in futures even though the clearing-house guarantees the trades themselves.
Example: a customer with $200,000 in a segregated account found roughly 72% available in the initial distribution and waited years for the rest, while open positions were transferred or liquidated by the trustee.
Related: segregated-funds, fcm, clearing-house, guaranty-fund, nfa