* CME questions whether brokers should hold customer money
* Exchange wants reevaluation after scandal at PFGBest
* Fraud at Iowa brokerage shook confidence after MF Global
By Tom Polansek
CHICAGO, July 13 (Reuters) – Futures exchange operator CME
Group questioned on Friday whether brokers should be
allowed to hold their customers’ collateral, following the
disclosure of massive fraud at failed brokerage PFGBest.
CME, which owns the 164-year-old Chicago Board of Trade and
offers trading on assets from oil to interest rates, said it was
“appalled” by recent violations of customer segregated funds,
which are supposed to keep customer money safe even if a
brokerage collapses.
The exchange operator made its first public comments on the
scandal at PFGBest after Russell Wasendorf Sr., chief executive
and founder of the Iowa-based brokerage, was arrested on Friday.
He has confessed to a 20-year fraud in which more than $100
million is thought to be missing.
“Without question, the current system in which customer
funds are held at the firm level must be reevaluated,” CME said
in a statement.
A spokeswoman declined additional comment.
The scandal at PFGBest, formally named Peregrine Financial
Group, has shaken traders’ confidence in the trillion-dollar
U.S. futures markets coming less than a year after the collapse
of brokerage MF Global last fall.
The prolonged nature of the fraud is sharpening criticism of
regulators like the National Futures Association (NFA), the
industry group that had first-line responsibility for overseeing
non-exchange brokers like PFGBest.
MF Global, by contrast, is believed to have tapped into
client funds in a desperate bid to keep itself afloat during its
final days. MF Global customers are still missing an estimated
$1.6 billion from their accounts.
CME, which regulated MF Global, said “these breaches of
trust are completely unacceptable not only to CME Group but also
the businesses and individuals who rely on these markets to
manage their risk.”
John Lothian, a well-known futures industry commentator who
writes a daily newsletter and is a former broker, said CME was
speaking up to try to restore trust in the markets and could be
angling to hold more money at its clearinghouse.
“It’s definitely opportunistic of the CME, but right now we
need solutions given these two utter failures,” he said.
