CME, National Futures Association To Weigh Futures Market Reforms
January 18 2012 - 5:09PM
Dow Jones News
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
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