CME Group To Tighten Oversight Of Futures Firms
04 Aprile 2012 - 8:48PM
Dow Jones News
CME Group Inc. (CME) will tighten scrutiny of futures firms in
the wake of the MF Global collapse, focusing on the way in which
they safeguard customer funds.
The breakdown in segregating customer and broker funds at MF
Global dealt a severe blow to the futures industry's credibility
and revealed failures in a system that had been the bedrock of
industry oversight for decades.
CME, one of MF Global's main regulators, said that starting next
month all members of its clearinghouse will be required to submit
daily reports detailing client funds. These must be approved by
senior executives of the firms, and CME said it would also carry
out more "surprise" audits of brokers' books.
"Customer segregation is the cornerstone of the futures
industry, and it is critical to ensure the protections afforded
under segregation are as strong as they can be for our market
participants," CME officials said in a client notice sent out this
week.
The stepped-up oversight is the latest move by Chicago-based
CME, the largest futures-exchange operator in the world by trading
activity, to address continued frustration from customers of MF
Global that have yet to be returned an estimated $1.6 trillion that
had been held on deposit with the failed broker-dealer, five months
after its collapse.
MF Global, among the biggest players in global derivatives
markets, was directly supervised by CME. Calls by some lawmakers
for the exchange operator to give up its oversight functions have
pushed CME to explore further steps to defend customers that do
business through futures brokers and devise new protections.
CME this week opened for registration a new, $100 million
insurance fund set up for farmers and ranchers that use CME's
futures markets to hedge price risk. The fund, announced in early
February, originally had been slated to become available March
1.
In May, futures firms that clear transactions for customers on
CME's derivatives markets will be required to file daily statements
tallying client assets held on deposit against outstanding trades,
due by noon the following day, according to the notice sent to
members this week. Statements must be signed by members' chief
executives, chief financial officers or a "designated
representative," CME officials wrote.
The Commodity Futures Trading Commission already requires such
firms to calculate how much customer money they hold against trades
on a daily basis and to keep client assets separate from firms' own
funds.
"We're supportive of additional steps that would protect
customer segregated funds," said Thomas Kadlec, president of ADM
Investor Services, a commodity futures brokerage. "Confidence is
important in this industry."
CME also outlined stricter rules for some transfers of customer
money across accounts controlled by its member firms. If a futures
clearing firm wants to move 25% or more of its customers' excess
funds held on deposit, its CEO, CFO or designated person would need
to approve the shift in writing.
In MF Global's final days, large-scale transfers of customer
money were made quickly as the firm sought to stay afloat, and some
of those funds wound up in the firm's own accounts, The Wall Street
Journal reported last month. MF Global executives have testified
that they didn't know their customers' money had gone missing until
after the fact and that they never instructed staff to illegally
dip into client funds.
CME further plans to review members' stewardship of customer
money under a new "surprise" review program to be submitted to
federal regulators. Firms also will be required to file bimonthly
reports on how customers' money is invested and where funds are
held, according to the notice.
-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;
jacob.bunge@dowjones.com
--Aaron Lucchetti contributed to this article.
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