Former customers of MF Global Holdings Ltd. (MFGLQ) and the firms that on Thursday agreed to take on their business face a potentially messy process, according to the chief executive of Interactive Brokers Group (IBKR), which nearly bought the struggling broker-dealer earlier this week.

Interactive Brokers "reluctantly" declined to join in a plan developed by CME Group Inc. (CME) to divide up MF Global's customer base and move them over to other firms, due to potential market exposure and legal risks that could come along with the business, Peterffy said.

"MF Global put the exchanges and regulators in a very tough position," Peterffy said in an email.

Regulators and exchanges had held out hope Sunday that MF Global and its bankers could negotiate a last-ditch sale of the troubled firm to Interactive Brokers, which operates in similar markets but has a different clientele. Interactive Brokers early Monday broke off those discussions after a discrepancy arose in the amount of customer assets held by MF Global, assets that are required by law to remain separate from a clearing firm's own funds.

The Commodity Futures Trading Commission on Wednesday figured the shortfall at $633 million. MF Global has declined comment this week.

The transfer project was put together in an effort to free up clients that had trades and collateral stuck with the collapsed firm since Monday.

"Interactive Brokers was interested in purchasing MF Global before the issues arose that have been reported in the media, but we reluctantly decided not to participate in this transfer of the customer accounts from the futures exchanges," Peterffy said in an email.

The main issue is that customer positions will be transferred with "minimum margin" to cover outstanding trades, and without an extra cash buffer, market movements could soon render the trades without enough collateral to cover the exposure. That would put the clearing firm accepting the customer account at "potentially large risk," Peterffy said.

The group of about 10 firms that have agreed to receive MF Global customers Thursday will either have to immediately ask their new clients for more money to cover the trades -- if these investors can be reached -- or else liquidate the accounts, unless the firms choose to take on the risk themselves, according to Peterffy.

"These brokers thus potentially face big market risks, litigation risk, confusion, complaints and unhappy customers," he said.

A better solution would have been to liquidate all MF Global customers' positions to cash on Monday, following the bankruptcy filing, Peterffy said, though this would have "created its own problems."

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com
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