CME May Face ‘Liability’ In MF Global Disclosure, Goldman’s Harris Says
CME May Face ‘Liability’ In MF Global Disclosure
Tim Boyle/Bloomberg
Flags fly on the front facade of CME Group Inc.'s Chicago Board of Trade in Chicago.
Flags fly on the front facade of CME Group Inc.'s Chicago Board of Trade in Chicago. Photographer: Tim Boyle/Bloomberg
Nov. 1 (Bloomberg) -- Andrew Stoltmann, a Chicago lawyer who represents investors in securities litigation, talks about MF Global Holdings Ltd. and prospects for stronger securities regulation. MF Global, under investigation by U.S. regulators after filing for bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, said CME Group Inc. Chief Executive Officer Craig Donohue on a conference call with analysts today. Stoltmann speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
CME Group Inc. (CME), the world’s largest futures exchange that’s fallen more than 9 percent this week, may face liability related to concerns it misled regulators over what it knew about MF Global Holdings Ltd., according to Goldman Sachs Group Inc.
“CME has been under pressure,” Daniel Harris, an analyst at New York-based Goldman Sachs, wrote in a note to clients yesterday. The concerns are “owing to worries it may face liability over the timing of communications with the CFTC following a discovery of a shortfall in MF Global’s segregated client accounts,” he said, referring to the Commodity Futures Trading Commission, the CME Group’s regulator.
Examiners from Chicago-based CME Group found unexplained wire transfers at the broker-dealer unit of MF Global and a $900 million shortfall in client funds during the weekend the failing broker was talking with possible buyers, a person briefed on the matter said this week. CME, which oversees its futures-broker members such as MF Global under its authority as a self- regulatory organization, noticed the shortfall by Oct. 30, about a day before the CFTC said they were told of the missing funds, according to the person, who spoke on condition of anonymity because the review isn’t public.
CME Group “followed CFTC requirements and CME rules and procedures in reviewing MF Global’s segregated funds statements and coordinating that review with the CFTC,” the company said in an e-mailed statement today.
‘Discussed the Shortfall’
The exchange owner was told in the early hours of Oct. 31 “that there was an actual shortfall in the segregated funds account and was told the CFTC was advised concurrently,” according to the statement. “Shortly thereafter, CME Group discussed the shortfall in a conference call with the CFTC and other regulators.”
CME Group fell $3.13, or 1.3 percent, to $238.05 as of 4 p.m. in New York, the lowest since Aug. 19. The shares have declined for four days and are 26 percent lower this year.
MF Global filed the eight-largest U.S. bankruptcy on Oct. 31 after a $6.3 billion bet on the bonds of some of Europe’s most indebted nations prompted regulator concerns and credit rating downgrades. The CFTC is investigating a $593 million- shortfall in the segregated customer accounts at MF Global, a person with knowledge of the regulatory probes said on Nov. 4.
According to the CFTC, a self-regulatory organization like CME Group “must provide ‘immediate notification‘ when ‘a member has failed to segregate or has misused customers’ funds,’’’ according to Harris.
‘‘It is challenging to expect CME shares to recover near term regardless of fundamental trends in the fourth quarter,’’ he said.
To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Silla Brush in Washington at sbrush@bloomberg.net.
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.
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