CME's Duffy: Stiffer Penalties Needed For Tapping Customer Funds

Tougher punishments should be meted out for futures firms that dip into their customers' money, in order to defend against another mess like MF Global Holdings Ltd. (MFGLQ), according to the chairman of CME Group Inc. (CME).

More frequent and deeper audits were not likely to provide enough deterrent against futures clearing firms illicitly transferring protected customer money into firm-held accounts, CME Executive Chairman Terry Duffy told a House of Representatives committee Thursday.

"I think the penalties need to be stiffer," said Duffy, testifying at a hearing of the House Committee On Agriculture examining the demise of MF Global. "The penalties are too loose and need to be applied."

The trustee unwinding MF Global's brokerage has estimated that as much as $1.2 billion in client money could be missing from MF Global's books, five weeks on from its Oct. 31 bankruptcy filing.

CME was MF Global's main regulator at the exchange level and commenced an audit of the firm in late January 2011, with a final report date in August. The exchange operator also audited records of MF Global twice during its final week of life, though Duffy said it appeared the firm tried to evade a thorough accounting of the customer funds it held on deposit.

If someone is bent on "corruption," Duffy said, no amount of regulations or audits are likely to stop them.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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