After MF Global’s bankruptcy and the subsequent revelation it had misused customers’ funds, the grain industry was left reeling from frozen accounts and the lost confidence of its customers during the last quarter of 2011. With Senate hearings underway at the moment and the near-certain uncovering of additional information on the case, who knows what will transpire in the near future, much less in the months to come.
I’m writing this column a day after the National Grain & Feed Association’s 40th Annual Country Elevator Conference, and thought I would take this opportunity to recap CME Group COO Bryan Durkin’s presentation, “Meeting the Challenge of the MF Global Bankruptcy.”
A sympathetic Durkin addressed the crowd of nearly 700 attendees with this message: The CME Group stands with the grain industry, and is doing everything in its power to aid in softening the blow the industry endured at the hands of MF Global’s wrongdoing.
Naturally, as the largest futures exchange operator and former MF Global regulator, the CME Group has weathered the brunt of the fallout, but Durkin was careful not to detract from the suffering of its customers who are “awaiting the return of funds they thought were safe.”
The account segregation system did not fail, he notes; this unprecedented event was caused by the failure of a firm that broke the rules.
“At CME Group, we met all of our obligations to our clearing member firms and to the customers,” Durkin explains. “MF Global’s transfer of segregated funds out of the appropriate accounts constitutes serious violations of our rules and of the Commodity Exchange Act.”
As the impact of “industrywide blow to the heart of commodities markets” became apparent, the CME Group was quick to act by offering a $550 million guaranty to the SIPA trustee to free up client funds, it also provided $50 million in capital to cover its customers’ losses.
“We offered these guaranties not because a rule says we have to, but because we are in uncharted territory here and we felt an inherent responsibility to help our customers to help them receive distributions as quickly as possible,” Durkin says.
Despite the possibility all losses may not be returned, Durkin assured the audience that the CME Group continues to lobby the trustee to release additional funds as soon as possible. To date, customers have been granted access to two-thirds of their balances, but Durkin insists the organization will not stop there: “We believe that all customers affected should have their full balances and property returned by MF Global, and, until then, we don’t feel the process is complete.”
Time will tell how things pan out. Regardless of where you place blame, it still helps to have a powerful advocate in your corner.
Happy New Year! Cheers to a productive and profitable 2012.