CME, National Futures Association To Weigh Futures Market Reforms

CME Group Inc. (CME) and the National Futures Association on Wednesday stepped up their defense of the U.S. futures industry's system of self-regulation, forming a joint committee to explore new methods for protecting customers following the collapse of MF Global Holdings (MFGLQ).

The futures sector's two biggest self-regulatory organizations will look at potential changes to regulation and compliance practices as part of an effort to rekindle confidence in the market, officials for CME and the NFA said in a joint statement.

While self-regulation has worked "for a very long time," NFA President Dan Roth said in the statement, MF Global's collapse and an estimated $1.2 billion in missing customer money have dealt a "severe blow" to the industry's reputation.

Other futures exchange operators like IntercontinentalExchange Inc. (ICE), the Kansas City Board of Trade and the Minneapolis Grain Exchange will join in the effort, which is set to hold its first meeting within two weeks. Recommendations are likely to come by the end of March, according to the statement.

MF Global filed for bankruptcy on Oct. 31 after a week that brought its largest-ever quarterly loss, several credit downgrades and growing concerns over the broker-dealer's outsized exposure to European sovereign debt. Regulators have blamed shoddy recordkeeping for the long delay in providing a full accounting for customers' funds, and CME executives have said the firm breeched U.S. futures laws set up to protect clients.

Chicago-based CME is the largest self-regulatory organization in the U.S. futures market, reflecting its dominant position in the business. Such self-regulatory organizations carry out broker audits and other supervisory functions not performed by the Commodity Futures Trading Commission, which oversees exchanges and makes rules for the market.

The self-regulatory model has come under scrutiny following MF Global's downfall. CME in particular drew criticism after the deficiency in customer funds came to light, though CME executives countered that the firm appeared to have taken steps to mislead CME auditors looking into the issue.

In December Rep. Barney Frank (D., Mass.) called on CME to spin off its regulatory arm into a separate entity, to eliminate any potential conflicts of interest.

Some futures traders have backed the creation of an insurance regime for futures investors, similar to the function fulfilled for stock markets by the Securities Investor Protection Corp. Others have suggested that customer funds now held by brokerage firms should be pooled in a central repository.

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

CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2024 to Jul 2024