After dithering for far too long, CME Group, Inc. (CME) has finally agreed to guarantee up to $300 million worth of MF Global (OTC:MFGLQ) customer funds. I hope my coverage of this issue helped to point them in the right direction. CME has told the trustee that it will stand behind transfers of cash into customers accounts, up to the $300 million limit, even if the money is never recovered.
I had hoped that they would step up to the plate fully and completely, but that hasn't happened yet. Customers stand to lose $650 million, not just $300 million, which means that $350 million is still at issue. Yet, guarantying at least part of the loss is a good start, may stop some of the more egregious margin calls, and is better than nothing. Most significantly, it is a recognition by the company of its responsibilities and failures, as the entity charged with supervising MF Global, and safeguarding customer funds.
The annual profit of CME Group, Inc. is in the range of a billion and a half dollars per year, and more than enough to make good on all MF Global customer losses. Those big profits were earned because traders trusted the system. With partial measures, confidence will not return. Of course, if a loss of confidence in futures exchanges continues, it might be a very good thing for America. Highly leveraged trading creates a lot of price instability. But, it would be very bad business for CME Group, its other clearing members, and the future profits at the casinos it operates.
CME should really do the right thing in full, not engage in half-measures. It should guarantee all MF Global customer losses. If necessary, it should enlist the help of major clearing brokers, like JPMorgan (JPM), Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS), Natixis (OTC:NTXFY), Deutsche Bank (DB), etc. If the stolen or misplaced money is recovered, they will all get paid back, resulting in this being a no-cost move. But, even if the funds were actually stolen outright, are lost forever, and it costs them a lot of money, they will be making an investment in their own future.