CME considers new rules to protect customer funds
BY DAVID ROEDER Business Reporter July 23, 2012 1:40PM
Updated: August 25, 2012 6:10AM
The owner of the Chicago futures markets said Monday it is considering new rules for trading firms that will change how they account for customer funds.
CME Group Inc., in its first public comment since the collapse two weeks ago of the brokerage Peregrine Financial Group Inc., said that “without question, the current system in which customer funds are held at the firm level must be re-evaluated.”
Regulators have said Peregrine boss Russell Wasendorf Sr. tried to hide a shortfall of more than $200 million in customer accounts. The scandal involving the firm rattled the confidence of many futures market users, especially because it followed last fall’s collapse of the firm MF Global, which had a customer shortfall of $1.6 billion.
The CME statement continued: “We are exploring the concept of having clearinghouses or other depositories hold all customer segregated funds while returning any interest on that money back to the [futures commission merchants], increasing protections while preserving the operating model for the vast majority of firms who respect and comply by the rules.”
CME’s two top officers, Executive Chairman Terrence Duffy and Chief Executive Officer Phupinder Gill, signed the statement. CME owns the Chicago Board of Trade and the Chicago and New York mercantile exchanges.
A central depository would be a significant change in how futures trading is conducted, but it could address what some traders see as a deficiency compared with stock trading. Stock investors have an insurance fund that protects them from losses because of a firm’s failure or fraud, but no such backup exists in futures.
Moreover, an industry-led reform could head off attempts by Congress to impose more stringent rules.
The CME statement, addressed to its customers, also listed other measures it and industry overseers have adopted to protect customers. They include surprise reviews of customer segregated funds; daily account reporting by all futures commission merchants, and direct online confirmation of customer funds a firm is holding.
Wasendorf, who is being held on federal fraud charges in Iowa, is accused of intercepting regulatory forms sent to his bank and fabricating account balances.
Another recent reform in the industry is direct signoff required from a CEO or chief financial officer for significant transfers of customer funds. It’s called the Corzine Rule, after former MF Global chairman Jon Corzine, who professed no knowledge of transfers that led to the shortfall. Corzine has not been charged with fraud.