Story originally appeared in the November 23, 2011 edition of the Chicago Sun-Times.

By David Roeder

The trustee searching for missing customer money in the bankruptcy of MF Global will investigate how well the Chicago futures markets monitored the brokerage before its collapse, a spokesman said Wednesday.

Kent Jarrell, a spokesman for Trustee James Giddens, said the quality of a late October audit of MF Global by CME Group Inc. will be part of a broader inquiry. CME owns the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, where MF Global was among the largest trading firms.

CME has said its audit showed the brokerage was complying in late October with rules about keeping customer funds apart from its other investments. After the audit was finished, MF Global drained money from customer accounts in violation of federal rules, CME has said.

MF Global declared bankruptcy Oct. 31 after a bad $6.3 billion bet on European debt. Since then, most customers have been unable to access accounts.

“We are charged by the court to investigate why it happened, how it happened,” Jarrell said. He noted that Giddens has subpoena power.

As a host for MF Global business, CME has a regulatory function, but traders have accused the exchange operator of shirking a legal duty to look out for their interests.

Jarrell said the trustee has no opinion about whether CME adequately supervised the firm.

In an email following an initial interview, Jarrell said CME was not being singled out.

“All actions leading up to the failure of MF Global will be part of our independent investigation. That could certainly include CME,” Jarrell said. He emphasized, “The primary goal of the investigation is to find out where customer property is, gain control of it and return it to customers.”

CME spokesman Michael Shore said in response, “CME is confident that it acted properly, and continues to cooperate with federal authorities in the government’s investigation of MF Global.”

The court-appointed trustee and CME have publicly differed over the possible shortfall in customer accounts. Giddens has estimated it at $1.2 billion, while the CME said Tuesday that his figure is too high.

But CME increased its own guarantee Tuesday to the trustee to $550 million. Giddens praised the guarantee, raised from an initial $250 million, as helping speed the return of customer money.

In a statement to member firms Wednesday, CME said its clearing operation should begin releasing cash from some MF Global accounts Friday. The cash will be issued to trading firms that have accepted transfers of MF Global accounts.

The money should be available to customers about Dec. 1 after a period of account reconciliation, CME said.

The distribution is part of a court authorization that $520 million can be returned. The money is only for cash balances, not the value of trading positions, and is intended to be a refund of 60 percent of the total amount.

Jarrell said the goal is a 100 percent return, but that will take time. “This is a brokerage that failed and the cleanup is messy,” he said.

John Roe, co-founder of a group representing people with money in MF Global accounts, said he feels better about the prospects of customers being made whole. He said U.S. Bankruptcy Court Judge Martin Glenn, hearing the case in New York, has given weight to the claims of customers even though he refused to allow their representatives to form their own creditors’ committee.

As for the CME’s new guarantee, Roe said, “We’re very happy that the CME finally stepped up, albeit three weeks late.”