Beginning in May, CME Group will require brokers for which it is the designated self-regulatory organization (DSRO) to submit daily customer fund levels.
In the notice sent to brokers, CME Group emphasized the importance of customer segregation to the futures markets. “Customer segregation is the cornerstone of the futures industry, and it is critical to ensure the protections afforded under segregation are as strong as they can be for our market participants,” it said.
Although CME Group did not name MF Global as the catalyst for the change, many industry analysts are attributing the notice to it. “It became really apparent after MF Global blew up,” says Jay Gould, partner at Pillsbury Winthrop Shaw Pittman LLP. “Before, if [brokers] had to report it monthly, that money could have been doing all sorts of things during the interim.”
According to Larry Dyekman, director of communications and education at the National Futures Association (NFA), the new requirement came out of a committee, consisting of CME Group, NFA, the Futures Industry Association and other DSROs, formed after MF Global’s collapse. The purpose of the committee was to get all DSROs on the same page and to find ways of improving the system.
In a case related to customer funds, JPMorgan recently agreed to pay $20 million for mishandling customer funds from Lehman Brothers from 2006 to 2008. As Lehman’s main clearing bank, it counted client money as belonging to the firm itself while extending loans that let Lehman take positions in markets, the CFTC announced in a statement. When Lehman filed for bankruptcy in 2008, JPMorgan refused to release customer funds for two weeks until the CFTC ordered it to.