UPDATE: Futures Exchanges Defend Handling Of MF Global
March 14 2012 - 11:15AM
Dow Jones News
Top executives of the world's largest futures exchanges on
Wednesday defended their management of the collapse of MF Global
Holdings, though they acknowledged the need for stronger customer
protections and a more uniform response.
Exchanges are working together to align methods for protecting
futures-market customers across jurisdictions, which has driven
headaches in trying to return money belonging to MF Global's
clientele, and new rules are needed to shore up brokerage
safeguards and bookkeeping practices, according to executives.
The basic structure of the system remains sound, however, and
exchange bosses pushed back against the idea of an insurance-like
protection scheme similar to that covering U.S. stock
investors.
"We need to stick with the segregation-type system and look for
ways to make it more effective," said CME Chief Executive Craig
Donohue, who said the concept of an insurance-like protection fund
for futures traders was "probably inadequate."
Donohue said CME did the best it could to supervise MF Global
and protect its customers. He said that the exchange operator,
which was MF Global's front-line regulator, had no regrets in its
oversight of the firm, which CME maintains broke rules governing
futures markets.
The trustee unwinding MF Global has estimated that $1.6 billion
worth of MF Global customers' money remains out of reach nearly
five months past the New York firm's Oct. 31 bankruptcy.
A Securities Investor Protection Corp.-like solution for the
futures markets is likely unworkable, Donohue said, because the
long-term nature of some hedges maintained by futures market
participants would be too much for an insurance fund to properly
cover.
Designing fixes for the problems exposed by MF Global's collapse
is hard to do until regulators and investigators provide a full
explanation as to how the money went missing, said Jeff Sprecher,
chief executive of IntercontinentalExchange Inc. (ICE), the
second-largest U.S. futures market operator by volume.
Foreign-based exchange operators said there is a need to
streamline bankruptcy processes for brokerage firms like MF Global,
and uniform approaches across boarders for so-called segregation of
customer funds, which requires brokers to keep customer money
separate from the firms' own assets.
"Long story short, the entire industry is working on making sure
that concepts for customer funds segregation across a whole
plethora of different legal environments is moving toward adequate
standardization," said Andreas Preuss, chief executive of Eurex,
the derivatives unit of Germany's Deutsche Boerse AG (DB1.XE).
Preuss and Magnus Bocker, chief executive of Singapore Exchange
(S68.SG), backed their markets' policies of immediately liquidating
the positions held by MF Global's customers following its
bankruptcy filing.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
Jacob.bunge@dowjones.com
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