MF Global Holdings, under investigation by U.S. regulators after filing for Chapter 11 bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, CME Group CEO Craig Donohue said Tuesday.
Speaking on a conference call with analysts, Mr. Donohue said MF Global isn’t in compliance with the rules of the exchange and the CFTC.
“While we are unable to determine the precise scope of the firm’s violation at this time, we are investigating the circumstances of the firm’s failure,” Mr. Donohue said.
MF Global is being investigated by regulators for hundreds of millions of dollars that may be missing from client accounts, according to two people with knowledge of the matter.
CME Group’s Chicago Mercantile Exchange is the designated self-regulatory organization for MF Global, meaning it audits and monitors the firm’s positions on a regular basis, said Laurie Bischel, a CME Group spokeswoman.
Under the regulations, futures brokers that trade on exchanges are required to keep their clients’ collateral, often cash or securities, separate from their own accounts. The segregated collateral is meant to reduce risk in futures trades. MF Global had almost $7.3 billion in customer funds in segregated accounts as of Aug. 31, according to the most recent CFTC data.
“The fact that the CME has stated that customer funds have been mishandled increases the likelihood that this is not just a simple accounting error or IT glitch,” Darrell Duffie, a professor at Stanford University’s Graduate School of Business, said in a telephone interview. “The CME obviously has access to its own clearing account records and would probably have based its statement on a review of those records.”
Diana Desocio, an MF Global spokeswoman, didn’t respond to e-mails or phone messages seeking comment.