Conoco: Letters of Credit Immune From MF Global Losses

ConocoPhillips Co. rebutted arguments by the U.S. Commodity Futures Trading Commission that letters of credit don’t give a commodity customer protection from losing collateral if the broker goes bankrupt after misappropriating customer deposits. The issue is arising in the liquidation of commodities broker MF Global Inc.

The trustee for MF Global took the position that regulations promulgated by the CFTC prevent Conoco from avoiding losses incurred by other customers because Conoco posted $205 million in letters of credit rather than cash as margin for trading accounts. The CFTC filed papers in August agreeing with the trustee and contending that the regulations don’t permit Conoco to avoid losses like those suffered by customers who posted cash margin that subsequently disappeared.

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