June 20, 2012 / 6:24 PM / 6 years ago

CME resumes charity grants halted after MF Global failure

CHICAGO (Reuters) - CME Group Inc, the biggest operator of U.S. futures exchanges, has resumed making grants from its main charitable foundation after a seven-month halt triggered by the failure of giant futures brokerage MF Global Holdings Inc.

The Chicago Mercantile Exchange is pictured March 17, 2008. REUTERS/John Gress

Charitable giving from the foundation is expected to fall this year, however, to about $3 million from $3.8 million last year, a CME spokeswoman told Reuters on Wednesday.

CME Group Foundation suspended new grant-making last November after the exchange operator decided to empty CME Trust — the foundation’s sole source of funding — to make payments to former MF Global customers stung by shortfalls to their accounts.

About $1.6 billion was found to be missing from customer trading accounts in the wake of MF Global’s collapse.

As efforts to recover those funds drag on, the $50 million in CME Trust has remained in limbo. It is scheduled to be paid out only after the bankruptcy trustee makes his final distribution of funds to creditors, and only if there is still a shortfall.

No such finality seems likely in the near term, however; James Giddens, the trustee tasked with recovering customer money, is suing MF Global’s British unit for the return of about $640 million, and that case is not set for trial until next year.

The whole process of returning funds could take six years, a top futures industry official said earlier this month.

MF Global customers have so far gotten back about 72 percent of their money.

Meanwhile the funds in CME Trust continue to generate interest income that is funneled to CME Group Foundation.

Earlier this month, foundation directors including CME Group Executive Chairman Terrence Duffy quietly approved close to $1 million in grants to schools and charities, according to a list provided to Reuters.

Grant recipients included IIT Chicago-Kent College of Law, which won $240,000, and the Academy of Urban School Leadership, which received $175,000. The foundation typically funds schools and other charities with a focus on financial education.


CME Trust was established in 1969 to provide financial assistance to customers if a brokerage became insolvent.

Federal rules requiring brokers to keep client money separate from their own made the prospect of customers actually losing money in a broker default seem so remote that the CME’s board in 2005 voted to channel the Trust’s money to public charities.

Three years later it established the CME Group Foundation, funded by annual donations from the Trust.

Then last year, the unthinkable happened: customers lost money in MF Global’s default after the company improperly mixed client funds with its own money.

CME operates the Chicago Board of Trade, the Chicago Mercantile Exchange, and the New York Mercantile Exchange, and only its own customers will be eligible for reimbursements from CME Trust.

Once the Trust’s money is paid out, CME will continue to fund the foundation’s grant-making from corporate coffers, a CME spokeswoman said. She declined to say how the change may have an impact on the exchange’s future level of corporate giving.

Two smaller charitable arms, the CME Group Community Foundation and the CBOT Foundation, were not affected by the MF Global debacle.

Total charitable giving from all CME charities was about $6 million last year, the same as the previous year, according to information provided by the exchange operator.

That is in line with the nation as a whole, where corporate donations nationally were also flat last year compared with the prior year, a survey from philanthropic research group Giving USA Foundation showed earlier this week.

Reporting by Ann Saphir; Editing by Maureen Bavdek

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