CME Group Plan Would House Customer Money Away From Brokerages

CME Group Inc. (CME), the world’s largest futures market, said it’s considering a plan to house all customer funds at clearinghouses or other depositories after futures investors have lost money held at MF Global Holdings Ltd. (MFGLQ) and Peregrine Financial Group Inc.

The exchange operator said any interest earned by the customer money would be returned to the futures brokerages to maintain a key feature of how the firms earn revenue, according to a letter to customers sent today by Executive Chairman Terrence Duffy and Chief Executive Officer Phupinder Gill.

“While these firms may have been at fault, it’s nevertheless our problem as an industry, and this problem needs a solution,” they wrote in the letter. Customers at MF Global are still missing $1.6 billion in segregated funds after the firm filed for bankruptcy in October.

About $220 million in segregated client money is unaccounted for at Peregrine after its founder and Chief Executive Officer Russell Wasendorf Sr. was arrested July 13 after a suicide attempt and a signed confession that he had defrauded customers for 20 years.

In both cases, the excess customer money held at the brokerages is what disappeared. The customer funds held by CME Group in the MF Global case and at Jefferies Group Inc. in the Peregrine situation were protected.

“CME Group is appalled by the recent misuse of segregated funds by two firms,” according to the letter from Chicago-based CME Group. “There has never been anything like it in the history of the futures industry.”

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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