CFTC investigators have reportedly expanded their MF Global inquiry to encompass activity at the CME Group in the days leading up to the MF Global bankruptcy. The CME ran the exchange where the bankrupt brokerage conducted the majority of its business, and served as the firm’s primary regulator.
The CFTC is acting on reports that the CME did not adequately attempt to ensure that customer money was protected as MF Global fell apart. $1.2 billion was discovered to be missing from customer accounts. Some believe that the exchange did not act quickly enough while the brokerage was clearly failing. No one was sent to MF Global until October 27th, when its credit rating was slashed and the firm was tumbling headlong into bankruptcy. Though CME auditors did eventually appear on-scene, they never completed a thorough audit.
The CME claims that MF Global could have turned over inaccurate documents which would have prevented the exchange from detecting the misuse of customer funds, moving customer funds “in a manner that may have been designed to avoid detection.” “Given the issues involved, we welcome and expect the C.F.T.C.’s investigation as a natural part of this process,” said a CME spokeswoman. “We are confident the C.F.T.C.’s review will determine we did everything right within our regulatory power. The system did not fail; the firm broke the law by misusing customer funds.”
At this time, no specific allegations have been made by the CFTC. If the CFTC does discover wrongdoing at the CME, the agency would likely fine or sanction the exchange–or, in an extreme case, revoke the exchange’s self-regulatory status.