CME says it has excess collateral for MF positions

CME Group Statement Regarding MF Global

CHICAGO, November 2, 2011 – CME Clearing is holding substantial excess margin collateral from MF Global Inc. (“MF Global”) and therefore continues to be in a strong financial position, both with respect to MF Global and more generally. MF Global’s customer positions on CME Group exchanges were and continue to be substantially over-collateralized at CME Clearing. As of today, the proprietary positions of MF Global have been liquidated with no adverse market impact, leaving a substantial part of that collateral to be applied to MF Global's obligations at CME.

Our primary focus is the protection of our customers and the integrity of our markets. Our current efforts are focused on working diligently with the CFTC and the SIPC trustee to facilitate the transfer of customer positions to other qualified clearing member firms, with as much CME Clearing held collateral as will be legally permitted. CME has no control over the disposition of customer segregated funds that are held by MF Global and not held by CME Clearing. Those funds are now under the control of the SIPC trustee. Nevertheless, we have urged the SIPC trustee to facilitate the transfer of such funds from MF Global to MF Global customers.

With respect to the apparent shortfall in customer segregated funds held by MF Global (and which were not on deposit with CME Clearing), it appears that any transfer of such funds occurred following the completion of CME audit procedures respecting such funds and in violation of CFTC Regulations and CME rules. CME completed its on-site review last week. At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011. CME fully discharged its auditing procedures in accordance with applicable procedures and standards and is working with regulators and authorities to investigate these transfers.

CME conducts regulatory financial examinations in accordance with the Joint Audit Committee procedures and standards. http://www.wjammer.com/jac/ The focus of these examinations is to effectively monitor the firm’s financial records to determine the firm’s full segregation compliance and to monitor any necessary corrective action. CFTC regulations and CME rules require maintenance of excess segregated funds at all times. Clearing firms are not permitted to transfer funds from the segregated account which will result in an under-segregated condition. CFTC Regulations and CME Rules also require clearing firms to calculate their customer segregated position daily and notify both the CFTC and CME whenever it knows or should have known that the customer segregated position was under-segregated. None of MF Global’s reports reflected any under-segregated positions. The reports actually reflected excess segregated funds.

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