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Scrutiny in Wake of MF Global Could Breakup CME

Scrutiny in Wake of MF Global Could Breakup CME

CME may face greater regulation following collapse of MF Global.

A major question that is being asked is whether or not the CME did enough prior to the collapse and ensuing bankruptcy of MF Global to make sure customer money was safe. The Commodity Futures Trading Commission is looking into the supervision of CME with regard to customer money.

MF Global filed for bankruptcy on Oct. 31, 2011 and it is estimated that $1.2 billion of customer money, which was not segregated as it should have been is still missing. A diversion of customer funds for the benefit of the firm would be a violation of industry rules.

A spokeswoman for CME Group, the biggest operator of U.S. futures exchanges and MF Global's front-line regulator, said the company welcomed any probe.

"We haven't been notified that they are investigating us, but we would expect and frankly welcome it - it's part of their job that they are looking at the things we did," CME spokeswoman Anita Liskey said. "We are confident that they will agree that we did our job to the best of our abilities."

Neither the CME nor its executives have been accused of any wrongdoing or charged in connection to the MF Global collapse. CME Executive Chairman Terrence Duffy has testified that MF Global provided false documentation to the CME about the customer funds under its control, saying it had a surplus and later correcting the documentation to show a deficit.

Fox Business News reported that sources say that a breakup of the CME, similar to the splitting of the NASDQ into a market arm and regulatory arm following a scandal in the late 1990s, is something that is “definitely on the table.”
To view a video report on the possible impact on the CME by Fox Business News’ Charlie Gasparino, click HERE.

Elsewhere in the investigation, the Wall Street Journal has reported that former FBI Director Louis Freeh, the bankruptcy trustee for MF Global's parent company, has refused to turn over some documents to the CFTC asserting attorney-client privilege. However, a spokesperson for Freeh said they were cooperating with investigators, were willing to discuss it with them and would be inclined to waive privilege.
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