Until now, trustee James Giddens had estimated a shortfall of about $1.2 billion, although he also said most of the funds had now been tracked down - although recovering them from other entities may be protracted.

"The $1.2 billion number is history," Kent Jarrell, a spokesman for Giddens, told Reuters.

The latest figures provided marginally more clarity for MF Global's thousands of commodity futures customers, who are still missing about 28 percent of their funds, although multiple variables could still cause the shortfall to rise or fall.

MF Global Holdings Ltd, the parent of the brokerage, filed for bankruptcy on October 31 amid fears about its exposure to risky European debt. In a report on Monday, Giddens said the firm's use of customer funds to cover corporate transactions led to a massive shortfall.

The new estimate for the size of that shortfall is broken down into two main components: roughly $700 million for customers who traded on foreign exchanges, the rights to which are in dispute with MF Global's UK entity; and about $900 million for customers who traded on domestic exchanges.

The estimate was reached through the processing of loss claims submitted by customers. Giddens is estimating a total of $6.9 billion in claims, $3.9 billion of which has already been paid back.

That leaves $3 billion outstanding. Giddens is keeping another $1.4 billion in reserve for now, yielding the estimated $1.6 billion gap.

But whether that gap represents a decrease or an increase from the trustee's previous $1.2 billion shortfall estimate proved a surprisingly complex topic.

"It's apples and oranges," Jarrell said. "We're changing the definition a little bit."

Because Giddens never explained exactly what the $1.2 billion figure included, it was unclear how much of it represented a shortfall for U.S. exchange customers and how much was made up of the disputed money in the UK for foreign exchange traders.

With more clarity, Giddens now says $700 million is comprised of the disputed money in the UK. That leaves only a $900 million gap in U.S. exchange customers' segregated accounts. But the net result is a larger gap ($1.6 billion) between the amount of customer claims and the funds Giddens now holds to pay those claims.

Another important caveat could raise the figure even more: the $1.4 billion under Giddens' control is in reserve in case of liability for claims likely to be submitted by other parties, including MF Global affiliates, Jarrell said.

Every dollar used from that reserve fund to cover such liability is one dollar less that won't go to customers. In other words, the $1.6 billion estimate represents a best-case scenario in which the brokerage's entire $1.4 billion reserve can go to customers.

Whatever size the gap turns out to be, Giddens will try to close it by pursuing claims against the affiliates, banks, exchanges and other counterparties purportedly holding customer money.

"The trustee is eager to make additional distributions to former MF Global Inc customers as soon as possible," Giddens' team said in a statement.

Customer advocate group the Commodity Customer Coalition said plenty of gray area still remains.

"There's no doubt that there are duplicate claims or claims that will be disallowed that will bring the number down," John Roe, the group's co-founder, told Reuters.

"He's looking at it from two sides of the ledger. He's taking what they've recovered and what people have claimed. We still don't really know what the hole is."

The brokerage liquidation is In re MF Global Inc, U.S. Bankruptcy Court, Southern District of New York, No. 11-2790.

(Reporting by Nick Brown and David Sheppard; additional reporting by Jonathan Leff; editing by Bob Burgdorfer, Dale Hudson and Andre Grenon)

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