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Uncharted Territory

The CME Group's response to the failure of MF Global

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 while it may no longer be timely when this issue mails, I feel it necessary to mention 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 right the wrongs of MF Global’s nefarious blunder.

Naturally, as the largest futures exchange operator and former MF Global regulator, the CME Group has weathered the brunt of the fallout, but he was careful not minimize the suffering of customers “awaiting the return of funds they thought were safe.”

Account segregation system did not fail, he notes, this unprecedented event was caused by the failure of a firm that broke the rules and not of any clearinghouse.

“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 “industry-wide 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 frozen client funds; it also provided $50 million in capital to cover its customer’s 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, but take solace in having a powerful advocate on your side.

In the February/March issue, Diana Klemme's Merchandisers' Corner article will provide a full recap of her experiences in the trenches of the MF Global scandal and its impact on agribusiness. The issue will also include a full recap of the NGFA Country Elevator conference.

Happy New Year! Cheers to a productive and profitable 2012.

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