Hedge Funds Not Covered Under CME Group's $100 Million Protection Fund

CME Group, the largest futures exchange operator in the U.S., announced the formation of a $100 million fund aimed at protecting farmers and ranchers who hedge their business in its markets.

CME said the move is in response to the MF Global fiasco, in which the stricken clearing firm violated federal regulations by misusing customer funds that were supposed to be segregated. CME said farmers and ranchers who use its markets can insure up to $25,000 per account in the event of losses stemming from the insolvency of a clearing member or other market participant.

"Though all the facts are not in yet, we do know our industry needs to focus on enhancing protections for customer segregated monies held at the firm level," CME Group Executive Chairman Terry Duffy said in a statement. "We believe this targeted first step is important to reassure hedgers so they can appropriately manage their risks and avoid business disruptions."

The fund, which is slated to take effect by March 1, will not retroactively cover any losses stemming from MF Global's demise. Individual commodities traders and hedge funds are not eligible for protection under the fund either.

The company added that under the new fund, farming and ranching cooperatives will be eligible for up to $100,000 each. And if losses in a future failure total more than $100 million, participants will be eligible for a pro-rated share of the fund, CME said. Meanwhile Chief Executive Craig Donohue said the $100 million fund is merely a first step in a series of enhancements it plans to make to boost customer protection mechanisms.

"Among the areas we look forward to exploring are stronger rules regarding custody of customer funds, firm-level internal controls, and insurance for market participants," Donohue said.

This announcement comes a day after various outlets reported that Commodity Futures Trading Commission said it traced more than 90 percent of missing MF Global customer money to the fallen firm's trading partners, securities customers, and banks. Earlier this week CFTC Commissioner Scott O'Malia said the agency is now focusing on getting to the bottom of how customer funds were lost at MF Global, whose customers are missing anywhere from $600 million to $1.2 billion according to various estimates. As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio