CME Suspends MF Global As Uncertainty Persists

CME Group Inc. (CME) suspended MF Global Holdings Ltd. (MF) as a clearing member late Monday, ending a day of efforts by global exchanges to clamp down on the collapsed U.S. broker's ability to trade.

Chicago-based CME, the world's largest derivatives exchange by volume, was among the last of its peers in the U.S. and Europe to serve notice that MF Global and its clients were barred from new business and limited to liquidation orders that closed out their positions.

The uncertainty about clients' ability to trade and access funds Monday is likely to be raised when CME executives face analysts after they report third-quarter earnings Tuesday. Its announcement came almost 12 hours after MF Global filed for bankruptcy protection.

MF Global's bankruptcy filing early Monday was followed by hours of uncertainty that cast billions of dollars in U.S. client assets into a legal limbo. People involved in the process said there was little clarity on when or how retail investors and financial institutions would be able to access their money.

Traders and rival brokerage houses complained about a lack of guidance from exchanges and regulators on how to handle the situation Monday, as clients of MF Global scrambled to reassure their own customers and continue doing business.

"Everything is still in limbo," said a senior executive with one major U.S. brokerage, which struggled to advise its clients on how to deal with the downfall of MF Global, one of the derivatives industry's biggest players.

The futures industry's handling of the matter is being closely watched as its practice of clearing trades--collecting and pooling collateral to soften the blow of a major market participant's failure--is being promoted as a way to make safer the trading of more-complex derivatives, such as credit default swaps.

New York-based MF Global maintains memberships at the world's largest financial clearinghouses and more than 70 exchanges, and is the second-largest trader at the CME and the largest at its Chicago Board of Trade unit.

As of Monday afternoon, broker customers of MF Global were able to move outstanding contract positions to other clearing firms. For instance, if a broker owned 100 crude oil futures set to pay off if the price of the commodity rises, that trade could be assumed by a rival of MF Global.

CME's action, flagged in a notice to members from clearinghouse President Kim Taylor, came hours after rival exchanges and clearing platforms took similar steps. Taylor and other CME executives were unavailable for interview.

Exchange operators including IntercontinentalExchange Inc. (ICE), Deutsche Boerse AG (DB1.XE) and others on Monday barred MF Global and its clients from making new trades, allowing them only to close out existing positions.

Clearinghouses act as a safety net for the listed derivatives sector, and take on the role of guaranteeing trades using pooled collateral from all of their members in the event of a default or liquidation.

But some brokers said they were uncertain what sorts of trades constituted closing out positions, or where such trades could be carried out, piling on uncertainty Monday. A notice from ICE on Monday advised traders looking to transfer contracts positions to arrange the process with MF Global.

The MF Global bankruptcy had U.K. regulators triggering new banking safeguards for the first time.

The U.K. Financial Services Authority said MF Global U.K. Ltd. had entered the Special Administration Regime introduced earlier this year, a post-Lehman Brothers reform designed to ensure the swift return of client assets and timely engagement with market infrastructure.

LCH.Clearnet Group Ltd. also issued a default notice on MF's U.K. and French arms late Monday U.K. time in a closely watched move as traders prepared for the ban on MF Global operations instituted by most U.S. exchanges and clearinghouses to extend worldwide.

Eurex, the derivatives arm of Deutsche Boerse also said late Monday it had suspended MF Global's U.K. clearing licence, and the London Metal Exchange suspended the broker from electronic and floor trading.

In Asia, Singapore Exchange Ltd (S68.SG) led the clampdown as it directed MF Global's local arm not to take on new derivatives positions and to reduce current positions with immediate effect.

The broker is also the largest trader on the SFE derivatives unit of Australia's ASX Ltd. (ASX.AU) in Asia, and MF Global is active in Hong Kong, Tokyo, Osaka, Mumbai and Taipei, though the company had been evaluating its expansion in the region under the restructuring instituted by Chief Executive Jon Corzine.

The Australian Securities & Investments Commission said Tuesday MF Global Australia Ltd.'s trading activity has been halted and that insolvency firm Deloitte has been appointed as administrator for the group's operations in Australia.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

-Cynthia Koons contributed to this article.

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