MF Global sows winter of discontent for CME

CHICAGO: Agricultural bankers and other players in the world’s grain markets say fallout from the collapse of giant broker MF Global is changing cash grain trading and fueling calls for alternatives and reforms.

Trading changes include more “back to back” transactions and more direct contracting by farmers to end users, eliminating middlemen like MF Global, merchandisers say.

Bankers and traders also say anger with lack of oversight by the Chicago Mercantile Exchange’s clearing house regarding MF Global’s supposedly secure customer accounts is rampant, spurring calls for more regulation of a traditionally close-knit, clubby and “self-regulating” industry.

Proposals have included the idea of setting up a separate “insurance fund” to hold the so-called “segregated” accounts that futures commission merchants (FCM’s) now hold and account for with the exchange clearinghouse, which is supposed to “mark to market” every trade every day to assure adequate capital.

Up to $1.2 billion in such segregated customer funds are still missing eight weeks after MF Global collapsed into bankruptcy after a revelation it had made a $6 billion bet on European sovereign debt that went sour.

“I don’t think people are satisfied with CME’s response. What the banks thought was rock solid isn’t as rock solid any more,” said Lance Holden, senior vice president with Wells Fargo Bank, the largest private lender to agribusiness that had customers who lost funds with MF Global. CME Group chief operating officer Bryan Durkin told a packed meeting of the National Grain and Feed Association this month, echoing earlier testimony by CME executives to Congress, that MF Global was the culprit, not CME’s clearing house.

“This was the failure of a firm. A firm that broke the rules, not the failure of any clearing house. At CME, we met our obligations,” Durkin told the gathering of 700 farm bankers, grain traders, brokers and farmers in Chicago.

“We believe all customers affected should have their full balances and property returned by MF Global. Until then, we will not consider the process complete,” Durkin said.

CME, looking to line up with its futures-trading customers and the banks like Wells Fargo who finance them, has pledged at least $550 million to the court trustee now sorting out the MF Global mess to help make good customers who were victimized.

But CME will need to do more, grain traders said. “We want to get the confidence back and restore confidence with the lenders too,” said Diana Klemme, vice president of Grain Services Corp in Atlanta, which advises grain buyers and sellers on marketing and risk strategies.

“In the end the loss of even a dime by users of the system will have a chilling impact,” said Jeff Hainline, president of Advance Trading, an Illinois brokerage with many farmer and farm cooperative clients.