* S&P says CME raised risk by increasing customer protection
* CME offered financial guarantees in wake of MF Global
* Risk also seen from CME's growing over-the-counter
By Tom Polansek
CHICAGO, Feb 8 Standard & Poor's Ratings
Services cut its rating for CME Group Inc on Wednesday,
warning the exchange operator increased its financial risk by
increasing protection to futures customers in the wake of MF
The ratings agency said CME also faced increased risk from
the sudden growth of its over-the-counter clearing business.
CME did not immediately respond to a request for comment.
"The rating actions follow several instances of CME Group
providing limited financial support to the trading customers of
its defaulted clearing members," S&P credit analyst Charles
S&P lowered CME's long-term issuer credit rating to "AA-"
from "AA" and said the outlook for the long-term rating was
negative. The agency affirmed a short-term "A-1+" rating for the
CME, which owns the Chicago Mercantile Exchange and Chicago
Board of Trade, is the world's biggest futures exchange operator
and was a primary regulator of MF Global before the brokerage
filed for bankruptcy on Oct. 31.
The failure shook traders' confidence in the futures
industry, as former MF Global clients discovered million of
dollars they had held in accounts at the firm were missing.
CME audited MF Global shortly before its collapse and has
faced criticism from some customers who think it could have done
more to protect them. Clients still have not received all their
S&P said its negative outlook for CME represents the
agency's view of "the potential legal, regulatory and
reputational fall-out" from MF Global's bankruptcy.
CME last week said it would set up a new $100 million fund
to try to draw farmers and ranchers back to the market for what
it called "bona fide" hedging activities. Some have reduced
their trading activity because of their diminished confidence in
CME in November approved a $600 million guarantee to speed
up payouts from the trustee overseeing MF Global's bankruptcy.
The support "raises incremental risks that were not
previously factored" into S&P's ratings for CME, the ratings
agency said. On their own, the money amounts to only about six
months of CME's free-operating cash flows, according to S&P.
Matthew Heinz, analyst for Stifel Nicolaus, agreed the
support for customers represented "pretty small potatoes for
CME." Still, he noted "it's not their sandbox to be out their
guaranteeing customer funds."
Regarding CME's over-the-counter clearing business, S&P said
it was nervous about the exchange's growing profile in credit
default swaps because the products are "outside the
clearinghouse's historical expertise."
The company's clearing volumes for over-the-counter interest
rate swaps and credit default swaps grew significantly in the