CHICAGO CME Group Inc (CME.O), the biggest operator of U.S. futures exchanges, wants all customer money to be held at clearinghouses or other depositories in order to keep it out of the hands of brokers where it might be misused.
The collapse of MF Global Inc MFGLQ.PK last year and this month's implosion of smaller futures brokerage Peregrine Financial Group has left customers with an estimated shortfall of $1.8 billion, undermining confidence in the industry.
"We are exploring the concept of having clearinghouses or other depositories hold all customer segregated funds," CME told customers in a letter on Monday.
The MF Global and Peregrine debacles have prompted a series of changes to futures regulation to deter future misuse of customer funds, including new requirements that brokers make more frequent reports on, and be subjected to spot checks of, the customer money under their control.
Blaming "management transgressions" for the misuse of customer funds at both firms, CME said that holding customer money at a clearinghouse could provide greater protection.
"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," it said.
CME declined further comment.
The National Futures Association, which regulated Peregrine, said it was weighing several options for increasing safeguards for customer funds, including keeping money at clearinghouses.
A signed confession found at the site of Peregrine CEO Russell Wasendorf Sr.'s botched suicide attempt on July 9 took credit for misappropriating funds and deceiving regulators for 20 years. Wasendorf was arrested July 13 and is in jail awaiting a bond hearing this week.
CME officials have also pointed the finger at MF Global CEO Jon Corzine for not keeping track of the customer funds kept at his firms, although Corzine has not been charged with any wrongdoing.
U.S. futures brokerages currently hold most of the money that customers put up to back their futures trades, earning interest on those funds while putting just a portion of the funds at clearinghouses.
Any interest earned on customer funds held at a clearinghouse under CME's new proposal would be returned to the brokerages, CME said in the statement.
Brokerages and clearinghouses each keep customer money at banks.
Bart Chilton, a commissioner for the U.S. Commodity Futures Trading Commission, backed the idea of allowing customers to keep their money in accounts under the custody of clearing organizations.
"Customers should have the choice of never having their money in jeopardy of having some MF-like or Peregrine-like event be the reason their money disappears," he said.
Attain Capital, a Chicago-based broker that is missing customer money held in Peregrine accounts, also supported the idea of clearinghouses holding customer money to keep it safe, saying "such a change removes a lot of the potential for funny business."
However, the proposal raised some concerns, with Attain saying it would not want foreign exchanges to hold customer funds. Some futures trading is done on foreign exchanges.
(Editing by Maureen Bavdek and Jim Marshall)