JOSEPHINE WANG

General Counsel

CHRISTOPHER H. LAROSA

Associate General Counsel

LAUREN ATTARD

StaffAttorney

SECURITIES INVESTOR PROTECTION

CORPORATION

805 Fifteenth Street, N.W., Suite 800

Washington, D.C. 20005-2207

Telephone: (202) 371-8300

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

INRE:

MF GLOBAL, INC.,

Debtor.

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Adversary No. 11-2790 (MG) SIPA

MEMORANDUM OF THE SECURITIES INVESTOR PROTECTION CORPORATION

IN SUPPORT OF TRUSTEE'S EXPEDITED APPLICATION FOR ENTRY OF AN

ORDER ESTABLISHING PARALLEL CLAIMS PROCESSES FOR COMMODITIES

AND SECURITIES CLAIMS, APPROVING FORM AND MANNER OF

PUBLICATION AND MAILING OF NOTICE OF COMMENCEMENT;

SPECIFYING PROCEDURES AND FORMS FOR FILING, INFORMAL

AND FORMAL DETERMINATION, AND ADJUDICATION OF CLAIMS;

FIXING A MEETING OF CUSTOMERS AND OTHER CREDITORS;

AND FIXING INTERIM REPORTING PURSUANT TO SIPA

The Securities Investor Protection Corporation ("SIPC") submits this memorandum in

support of the application of James W. Giddens ("Trustee"), trustee for the liquidation of MF

Global, Inc. ("Debtor") under the Securities Investor Protection Act ("SIPA"), 15 U.S.C. §§

78aaa et ~, for entry of an order: (l) establishing parallel claims processes for commodities

and securities customers; (2) approving the form and manner, as proposed by the Trustee, ofthe

publication and mailing of notice of the commencement of the liquidation; (3) specifying
procedures and forms for the filing, determination, and adjudication of claims; (4) fixing a

meeting of customers and other creditors, as required by Section 341 ofthe Bankruptcy Code (II

U.S.C.); and (5) establishing a schedule for interim reports by the Trustee, as required by 78fffI(c) ofSIPA.

With respect to securities customers and general creditors, the claims procedures

proposed by the Trustee are identical to those embodied in orders entered by this Court and

others throughout the country in literally hundreds of other liquidations under SIPA, including In

re Lehman Brothers, Inc., Adv. No. 08-1420 (lMP) (Bankr. S.D.N.Y.). The procedures proposed

with respect to commodities customers reflect, and conform to, the requirements imposed by the

Commodity Broker Liquidation provisions of Subchapter IV, Chapter 7, of the Bankruptcy

Code, II U.S.c. §§ 761-765, and the associated regulations, 17 C.F.R. part 190, as made

applicable here, to the extent consistent with SIPA, by SIPA Section 78fff-I(b). Due to the need

for prompt publication of the required notices and the earliest possible commencement of the

claims process, the Trustee properly brings his application on an expedited basis.

The factual and procedural background underlying the Trustee's application are

incorporated by reference here.

ARGUMENT

A. Overview of SIPA

In the wake ofthe failure of numerous securities broker-dealers, Congress enacted SIPA

in 1970 "to protect individual investors from financial hardship; to insulate the economy from

the disruption which can follow the failure major financial institutions; and to achieve a general

upgrading of the financial responsibility requirements applicable to brokers and dealers in order

to eliminate, to the maximum extent possible, the risks which lead to customer loss." See S.

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Rep. No. 91-1218, at 3, 4 (1970) ("Senate Report"); H.R. Rep. No. 91-1613, at 2 (1970)

("House Report,,).l Through SIPA, Congress sought to accomplish these objectives in two ways.

First, it enhanced the power of the Securities and Exchange Commission ("SEC") to establish

financial responsibility rules for broker-dealers and to impose upon the securities industry's selfregulatory organizations requirements for the financial examination oftheir members. See SIPA

§ 78iii(f). Second, it created SIPC,2 made membership in SIPC mandatory for most brokerdealers, and empowered SIPC to commence proceedings for the liquidation of member brokerdealers whose financial condition posed the risk of loss to their customers. See SIPA §§

78ccc(a) & eee(b). See also House Report at 11-13.

SIPC plays a central role in a statutory process designed to afford carefully delineated

protection to securities customers against the financial risks posed by broker-dealer failure. That

process begins with the SEC and/or the self-regulatory organizations.3 If the SEC or any selfregulatory organization believes that a member broker-dealer is in, or is approaching, financial

difficulty, it must immediately notify SIPC. SIPA § 78eee(a)(1). If, upon such notice, SIPC

determines that the referred broker-dealer has failed to meet its obligations to customers, or is in

danger offailing to do so, and that one or more specified statutory conditions exists, it may apply

1SIPA was extensively revised in 1978. See Securities Investor Protection Act Amendments of

1978, Pub. L. No. 95-293, 92 Stat. 249 (1978); Bankruptcy Reform Act of 1978, Pub. L. No. 95-

598, § 308, 92 Stat. 2549, 2675-76 (1978).

2SIPC is a private, non-profit, membership corporation. See SIPA § 78ccc(a)(1). Its Board of

Directors consists ofseven persons, five appointed by the President ofthe United States with the

advice and consent ofthe Senate, and one each appointed by the Federal Reserve Board and the

Secretary ofthe Treasury, respectively.

3The self-regulatory organizations consist of the national securities exchanges and the Financial

Industry Regulatory Authority, Inc. ("FINRA"). 15 U.S.C. § 78c(a)(26).

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to the appropriate federal district court for a "protective decree," adjudicating that the customers

of such member are in need of the protection provided by SIPA. SIPA §§ 78eee(a)(3) and

78111(I3). Ifthe district court finds that at least one ofthe relevant statutory conditions exists, it

must issue a protective decree, and must then appoint as trustee for the subject broker-dealer, and

as attorney for the trustee, such persons as SIPC, in its sole discretion, shall specify. SIPA

§ 78eee(b)(I) and (3); SIPC v. Barbour, 421 U.S. 412 (1975). The proceeding thus commenced

is a liquidation in which the trustee generally has the same powers and title with respect to the

debtor broker-dealer and the debtor's property as a trustee in banlauptcy, including the right to

avoid preferences. See SIPA §§ 78fff, 78fff-l(a).

SIPA does not attempt to make all customers whole, and SIPC is not an insurer of

customer accounts. Rather, SIPA establishes a plan of limited protection in which SIPC's role is

carefully delineated. SIPC administers a "quasi-public" fund established by SIPC via

assessments upon its member broker-dealers.4 SIPA § 78ddd; SEC v. Packer, Wilbur & Co., 498

F.2d 978,980 (2d Cir. 1974). SIPA contemplates that customer claims will be satisfied to the

maximum extent possible from the assets (including customer property) on hand with the brokerdealer in liquidation. SIPC funds merely supplement those assets within the limits and in the

manner provided in SIPA and are available solely as advances to the trustee for the satisfaction

of protected customer claims and for other specified purposes. To the extent ofthese advances,

SIPC has rights ofsubrogation and recoupment as specified in SIPA. See SIPA § 78fff-3(a) and

78fff-2(c)(I).

4SIPA authorizes SIPC to borrow up to $2.5 billion dollars from the United States Treasury

should SIPC's funds be inadequate to carry out its purposes. See SIPA §§ 78ddd(f), (g), & (h).

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Under SIPA, however, these protections are available only with respect to securities

customers of the failed SIPC member. The statute thus limits the defmition of "customer" -

which delineates the category of claimants eligible for SIPC advances, inter alia - to "any

person...who has a claim on account ofsecurities received, acquired or held by the debtor in the

ordinary course of its business as a broker or dealer from or for the securities accounts of such

person... " SIPA § 78111(2)(A) (emphasis added). Thus, for SIPA purposes, "customers" eligible

for SIPC protection include only those with assets held by the debtor for them as a securities

broker-dealer in "securities," not commodities accounts.

Despite the absence of SIPC protection for commodities customers, SIPA expressly

contemplates the liquidation of a SIPC member operating as both a securities broker-dealer and

futures commission merchant ("FCM"). Thus, where the debtor is both a securities brokerdealer and a "commodity broker" - a term defined in Section 101(6) ofthe Bankruptcy Code (11

U.S.C.) that encompasses any FCM - Section 78fff-l(b) of SIPA imposes upon a SIPA trustee

the same duties as applicable to a trustee under the Code's Commodity Broker Liquidation

provisions, 11 U.S.C. §§ 761-767, to the extent that those duties are consistent with SIPA and

with certain exceptions noted in SIPA.

B. An Order is Necessary to Implement SIPA's Notice and Claims Provisions

To the extent consistent with SIPA, a SIPA liquidation is conducted in accordance with

chapters 1, 3, and 5, and subchapters I and II of chapter 7 of the Bankruptcy Code (11 U.S.C.).

See SIPA §78fff(b). Many of SIPA's procedural requirements differ markedly from those

applicable in bankruptcy liquidations, however. For example, the trustee and its counsel are

designated by SIPC. SIPA §78eee(b)(3). Moreover, the trustee is responsible for mailing notice

ofthe commencement ofthe SIPA proceeding to potential customers and creditors, but can do so

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only after the bankruptcy court has determined the "form and manner" of notice. SIPA §78fff2(a)(I). Would-be customers "need not file a formal proof of claim," but must file "a written

statement of claim;" must make that filing with the trustee, not the Court; and must do so within

a period set by the Court not exceeding sixty days from the date of publication of notice to

qualify for the maximum measure of protection available for "customer" claims under the

statute. SIPA §78fff-2(a)(2).s

SIPA requires that notice ofthe commencement ofthe liquidation must be published and

mailed to potential customers and creditors "in the form and manner determined by the court."

See SIPA § 78fff-2(a)(I). Courts presiding over SIPA liquidations routinely enter orders

specifying detailed procedures governing these matters. See, M,., In re New Times Securities

Services, 318 B.R. 753,755-56 (Bankr. E.D.N.Y. 2004), rev'd on other grounds, 337 B.R. 259

(E.D.N.Y. 2005), rev'd on other grounds, 463 F.3d 125 (2d Cir. 2006); In re AR. Baron Co.,

Inc., 226 B.R. 790, 792 (Bankr. S.D.N.Y. 1998); In re Investors Center, Inc., 129 B.R. 339, 346

(Bankr. E.D.N.Y. 1991). The procedures proposed by the Trustee in his application with respect

to notice and the filing and resolution of customers' securities claims and general creditor claims

are consistent with SIPA and generally track the procedures that have been followed in SIPA

cases virtually since the enactment of SIPA See, M,., SIPC v. Saxon Secs. Corp., Fed. Sec. L.

Rep. (CCH) , 95,397 at 99,026 (S.D.N.Y. 1975). Further, because SIPA requires both prompt

notice to potential customers and other creditors, and prompt filing of claims by would-be

customers and creditors following notice - and because delay creates great risks, M,., to

sSIPA sets an absolute limit of six months from the publication date for receipt of a claim.

Claims for "customer" relief under SIPA - i.e., claims of securities customers - received after

sixty days need not be paid out of customer property, however, and may be satisfied in the

manner determined by the trustee to be most economical to the estate. SIPA §78fff-2(a)(3).

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customers with claims for securities whose value may decline during the course of the

proceeding - courts regularly enter such orders upon ex parte and/or expedited application by the

Trustee. See,~, A.R. Baron, 226 B.R. at 792.

C. The Proposed Order Properly Implements the Notice and Claims Provisions

The order proposed by the Trustee provides the guidance necessary to implement the

provisions of SIPA described above and to provide for an orderly liquidation of the Debtor. To

ensure that the Court is apprised ofthe progress ofthe liquidation, the order requires the Trustee

to file regular and periodic'reports with the Court. Further, the order specifies the form of the

notices required by SIPA, and the manner and timing of the publication and mailing of those

notices.

The order also establishes comprehensive procedures for the filing, determination, and

adjudication of claims in this SIPA liquidation. In accord with the fact that the Debtor operated

as both a securities broker-dealer and an FCM - thus necessitating the separation ofthe Debtor's

estate into a fund of property allocable to securities customers, one allocable to commodities

customers, and a general estate - the proposed claims procedures includes separate claim forms,

instructions, and filing deadlines for claimants in each category. Consistent with SIPA, the

forms and procedures applicable to securities claimants and to general creditors conform to the

requirements of SIPA and track those used in hundreds of prior SIPA liquidations, while the

forms and procedures applicable to commodities customers conform to the requirements of the

Bankruptcy Code's Commodity Broker Liquidation provisions and the associated regulations.

The content ofthe order proposed by the Trustee is tried and true. The proposed order is

fully consistent with, and gives effect to, the applicable provisions of SIPA and the Commodity

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Broker Liquidation provisions, and will effectively implement SIPA's notice and claims

provisions.

CONCLUSION

For the reasons stated, the Court should grant the Trustee's application and should enter

the order sought by the Trustee.

Dated: Washington, D.C.

November 15,2011

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Respectfully submitted,

JOSEPHINE WANG

General Counsel

CHRISTOPHER H. LAROSA

Associate General Counsel

lsi Lauren Attard

LAUREN ATTARD

Staff Attorney

SECURITIES INVESTOR PROTECTION

CORPORATION

805 15th Street, N.W., Suite 800

Washington, D.C. 20005

Telephone: (202) 371-8300

Facsimile: (202) 371-6728

E-Mail: jwang@sipc.org

clarosa@sipc.org

lattard@sipc.org