In the shadow of brokerage scandals, new proposals

AP News
Posted: Jul 23, 2012 3:55 PM

The financial industry is in an almost-constant battle to soothe investors unnerved by recent scandals. Monday brought another example.

The CME Group said it was exploring the idea of having brokerages separate their customers' money from their own funds, keeping the customer money in a clearinghouse or other type of separate depository. The idea was floated in a letter to customers.

The CME Group's suggestion comes as the collapse of two brokerages, MF Global in October and Peregrine Financial Group this month, are still fresh. In both cases, customer money disappeared by the time the companies filed for bankruptcy protection.

Brokerages are already required to keep customer money in separate accounts from company money. That way, if a company fails, customers should still be able to get their money back. MF Global and PFG rattled investor confidence because they raised the possibility that segregated funds are not as safe as investors previously thought. Bankruptcy trustees are trying to recover the missing customer money in both cases.

The CME Group runs futures exchanges where investors can trade on agricultural commodities, energy, metals and other investments.

In the letter, the CME Group said it was "appalled by the recent misuse of segregated funds by two firms, MF Global Inc. and PFG."

"Not protecting customer funds is such a fundamental breach of trust that, without question, the current system in which customer funds are held at the firm level must be re-evaluated," said the letter, which was signed by Executive Chairman and President Terrence Duffy, and CEO Phupinder Gill.

The CME Group said that it is putting in new safeguards to protect customer money, along with the National Futures Association and the Commodity Futures Trading Commission. Those include more surprise reviews and requiring top executives, such as the CEO and chief financial officer, to sign off on statements about customer-segregated funds

CME Group shares slipped 25 cents to $51.15 in late afternoon trading.