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UPDATE 1-CME Group CEO: self regulation works after MF Global
March 14, 2012 / 5:47 PM / 6 years ago

UPDATE 1-CME Group CEO: self regulation works after MF Global

* Exchange leaders discuss MF Global at futures conference

* CME says self-regulation supplements government oversight

* Missing MF Global client money amazes Hong Kong exchange chief

By Tom Polansek

BOCA RATON, Fla., March 14 (Reuters) - CME Group CEO Craig Donohue on Wednesday said the failure of MF Global did not show the exchange operator’s self-regulatory model is broken.

“I absolutely don’t think that it’s broken,” he said in a panel discussion at the Futures Industry Association’s annual conference in Florida.

CME has been under fire in recent months for its handling of the collapse of MF Global, whose $1.6 billion in customer funds are still missing. CME was the broker’s first-line regulator.

MF Global, run by former Goldman Sachs CEO Jon Corzine, collapsed on Oct. 31 after making bad bets on European sovereign debt. Corzine has told Congress he “never intended to break any rules” and does not know what happened to the missing customer money.

Customer funds in segregated accounts are supposed to be protected, even if a broker fails.

Donohue said the industry was looking at improving customer safeguards, yet the exchange operator’s self-regulation model is “an enormous supplement to the resources of government.”

Indeed, the futures industry has “a long history of self regulation,” CFTC Chairman Gary Gensler said. That legacy, along with lack of funding to conduct examinations on its own, has resulted in the commission’s reliance on exchanges to be the first-line regulators of brokers and futures commission merchants, or FCMs.

“We do not examine FCMs on a regular basis,” Gensler said. “We need significantly more staff” to do even the examinations CFTC currently is responsible for, Gensler told reporters at the conference.

Singapore Exchange, like CME, is a self-regulator. Its president, Muthukrishnan Ramaswami, said he did not think “that just one instance of MF Global means the whole set of rules needs to be revisited.”

Ramaswami said he believes the self-regulatory system works well, but “checks and balances need to be in place.”

“The line between safety and soundness, and business and growth, is a very fine line to walk,” he said.

CME and the National Futures Association, an industry group, earlier this year formed a committee with other exchanges to review how self-regulatory organizations can strengthen safeguards for customer segregated funds held at the firm level.

It is difficult to know what changes the industry needs to make because it is still unclear how money held in accounts of former MF Global customers went missing, said Jeffrey Sprecher, chairman and CEO of IntercontinentalExchange.

“We don’t have enough information right now to know exactly what went wrong,” Sprecher said in the panel discussion.

The disappearance of customer money has shaken confidence in futures markets around the world, said Charles Li, CEO of Hong Kong Exchange and Clearing. He said it was “amazing” that customer money went missing.

“Betting customers money is something that we only thought happened in the third world,” he said.

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