Increased surveillance cannot guarantee customers will never again lose money in a broker insolvency, though the collapse of MF Global Holdings may lead futures exchanges to conduct more spot checks, a top US regulator said on Thursday.
The admission by National Futures Association chief Dan Roth, who is organising an industry response to the broker's failure aimed at rebuilding confidence in futures trading, suggests scars from the implosion may be difficult to erase.
Investigators are still seeking hundreds of millions of dollars of customer money that went missing after MF Global, the biggest independent US futures brokerage, filed for bankruptcy on October 31. Executives from CME Group Inc, IntercontinentalExchange Inc and other US exchange operators will meet this month to discuss how best to safeguard customer money at the brokers they oversee.
They expect to make proposals for rule changes by the end of the quarter. But if, as CME officials have suggested, the broker knowingly misused the money and deceived regulators, no amount of checking could have prevented the losses, Roth said.
Short of that, Roth said, exchanges can still do plenty to shore up their oversight, using information from banks to double-check broker reports, and technology to speed reviews.
Exchange executives will likely first convene the week after next, he said. They will include CEOs from the Kansas City and Minneapolis grain exchanges, as well as the head of CME's clearing house, Kim Taylor, Roth said. Unlike the securities industry, where an independent agency acts as watchdog, futures exchanges police the industry on their own. They want to keep it that way.
MF Global's failure has raised questions about whether exchanges are keeping a tight enough leash on the firms that bring them the trading volume that drives their profits.
But Roth said the panel was not aimed at changing the minds of lawmakers who might otherwise try to take away exchanges' oversight duties.