From the February 01, 2012 issue of Futures Magazine • Subscribe!

Terry Duffy: Staring down his biggest challenge

Q&A

CME Group Executive Chairman Terry Duffy has led the Chicago Mercantile Exchange as chairman since before it became a public company, before its common clearing link with the Chicago Board of Trade, before the CBOT merger, before the acquisition of the New York Mercantile Exchange, before there was such a thing as CME Group and when most trades were still executed in a pit on the trading floor. But with all those monumental changes that occurred under his leadership, his greatest test may be building back trust in the industry itself, trust that was shattered when MF Global violated customer segregation rules. We sat down with Duffy to talk about what happened and potential changes that may come out of the MF Global crisis.
Futures Magazine: Knowing what we know now, do there need to be changes made in the industry? How do you regain the trust of people using the markets?

Terry Duffy: I would say that if people have viable alternatives to the way the industry is conducted today they should be on the table. What cost [would those alternatives put on] participants of the marketplace? And then I would say, how many times has the current system failed the industry participants in the last 75 years? And now tell me what are you going to do that makes the current system better than it is with your recommendations? We had one incident in 75 years where someone decided to do this. I believe, and I said this in my congressional testimony, the fines and the penalties need to be stiffer for anybody that dips into customer funds for their own benefit. What is the biggest misdirect, and nobody has said this except for me, is when you do a repo the securities have to be in the customer segregated fund account before the cash comes out. That is the law. And when you reverse it, the same thing has to happen, the cash has to go into the account before the securities are released. Nobody has [asked] if that ever happen. Did MF Global make sure the securities were in the person’s individual seg account before they took the money out in the repos? There should be nothing missing if the securities are in there. Where are the securities? Where are the 1.25 regulated CFTC securities? Why are they not being replaced? That is the way the law reads, it has to be there before the cash comes out.

Duffy testimony to House Agriculture Committee on Dec. 8, 2011

Duffy testimony to Senate Committee on Agriculture on Dec. 13, 2011

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