CME Chief Speaks Out on C.F.T.C. Inquiry

Terrence Duffy is the executive chairman of the CME Group.

To expand on the article by Ben Protess and Azam Ahmed on Friday, Jan. 5 (“MF Global Inquiry Turns to its Primary Regulator”), it is no surprise that CME Group is included in the Commodity Futures Trading Commission’s review. In November, the C.F.T.C. requested that CME Group not conduct its own investigation, but rather take part in the agency’s inquiry, and since then we have worked together closely.

To be sure, it is the C.F.T.C.’s job to look at everything that occurred leading up to the MF Global failure; and we are confident the agency will agree that we fulfilled our responsibilities as the designated self-regulatory organization. We have talked to the C.F.T.C., which has confirmed that nothing has changed with respect to its investigation. Moreover, the fact that the C.F.T.C. enlisted our help to complete the majority of the limited reviews to ensure firms’ compliance with customer segregation rules shows that it continues to trust the quality of our work.

It is important to recognize that MF Global submitted a report to CME Group on Friday, Oct. 28, showing that customer segregated accounts were not only in compliance, but contained a $200 million surplus above what was required for the close of business on Thursday, Oct. 27. It was not until Monday, Oct. 31, that the firm restated its report to show the original submission was false and there was, in fact, a substantial shortfall in segregated funds.

In my oral and written testimony before three Congressional committees, I stated that it was the unlawful transfer of funds from clients’ segregated accounts that led to the customer shortfall. As Ananda Radhakrishnan, the C.F.T.C.’s director of the division of clearing and risk, was quoted in your newspaper on Dec. 9 as saying, “If people are determined to misuse customer funds, they will misuse them.”

It’s easy, but not helpful or fair, to criticize CME Group’s diligent and appropriate oversight based on what is now known about how MF Global violated exchange and C.F.T.C. rules. The fact that MF Global’s executives permitted customer funds to be misused does not mean that the regulator or the regulatory system failed. The failure was with the executives who committed these actions.