UPDATE: Futures Exchanges Defend Handling Of MF Global

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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