MF Global Files for Chapter 11; Problems May Extend Beyond Euro Exposure

Updated: MF Global filed for Chapter 11 bankruptcy protection on Monday in the latest blow to the once mighty derivatives brokerage run by former N.J. governor Jon Corzine.

The company held talks over the weekend with several companies, including Interactive Brokers (NASDAQ:IBKR), to potentially sell assets, or profitable portions of the company, according to media reports.  However, those talks fell through early Monday, the Wall Street Journal reported on its website, citing unnamed sources. Interactive Brokers' concerns went beyond the company's high exposure to sovereign debt, meaning there could have been issues in other parts of its balance sheet, sources told FOX Business' Charlie Gasparino.

Earlier in the day, the New York Federal Reserve said it has suspended new business with the futures trading company until it establishes it is "fully capable" of performing its duties as a primary broker.  It is one of 22 primary brokers that trade government bonds directly with the New York Fed.

Several major derivatives exchanges in which MF Global once had a strong foothold took steps to limit volatility caused by the company's fall into bankruptcy.

InterContinentalExchange (NYSE:ICE) and CME Group (NYSE:CME) limited MF Global customers to unwinding positions and said it will no longer recognize the company or its divisions as a guarantor. Meanwhile, the New York Mercantile Exchange halted trading for any traders utilizing the firm as a clearinghouse, according to the Journal, citing traders on the floor of the exchange.

MF Global is a major player in derivatives markets, so the news may have an outsized affect on futures trading.

In its bankruptcy filing with Federal Bankruptcy Court in Manhattan, MF Global Holdings reported assets of $41 billion on liabilities of $39.7 billion.

The filing listed JPMorgan Chase (NYSE:JPM) as its biggest unsecured creditor, with an approximate claim of $1.2 billion.  Deutsche Bank Trust Company was the second biggest claimant.

Brokerage Charles Schwab (NASDAQ:SCHW) is mulling a bid for MF Global's retail futures segment, sources told FOX Business' Gasparino. Schwab, which has in the past used MF Global to clear retail futures transactions, had no immediate comment.

MF Global is also working to offload its institutional clearing business, sources say, but that may prove more difficult because most institutional asset managers have already moved clearing operations elsewhere.

The New York-based company reported a quarterly loss of $192 million last week, and seen its shares plunge more than 60% since then. MF Global shares were halted on the New York Stock Exchange since the start of trading Monday.

As of late-September, the firm had a $6.3 billion exposure to struggling European sovereign debt as compared to $41 billion in assets, which spooked analysts since it represents a particularly high exposure as compared to many of its peers in the financial realm.