Summary of a Reuters article on why MF Global might be just the first...: MF Global didn't steal client money, the re-pledged their assets in legal repo operations. And now the money is gone (1.2bn USD). And there is more…; Morgan Stanley, e.g., has re-pledged 410bn USD (off balance sheet) in a similar fashion.
Technicals: UK banks (re-)use clients' collateral in off balance sheet collateral repos with other banks, who in their turn re-use the same collateral. According to IMF this creates 4x the collateral value in liquidity. Since UK rules are more lax than in the US, US banks transfer client collateral to UK subsidiaries for re-using. Some banks (Jefferies) have such off-balance sheet commitments amounting to 2/3 of their official balance sheet. JP Morgan re-pledged collateral this way to the tune of 546bn USD in2011 and Morgan Stanley 410bn, according to the article.
The frightening future: Sov debt is among the typical collateral used in such transactions and if PIIGS debt exposure, bad as it is, has been multiplied by 4x through chains of re-pledging, the EU sov debt problem is much worse than thought and a lot of client money as well is in serious risk, legally.
If the article has its facts straight, this is very troubling.