MF Global Holdings Ltd. failed to protect customer accounts by keeping them separate from its own funds, a top U.S. exchange regulator said yesterday, another shock for commodity markets scrambling to contain fallout from the brokerage’s bankruptcy.

    The revelation by CME Group Inc. suggests Jon Corzine’s MF Global violated a central tenet of futures brokerages. It could erode confidence in a market that for decades has enjoyed a sterling reputation for safety.

    MF Global cannot account for a large amount of customer money that was supposed to be kept separate from other funds, sources said, and regulators are scrambling to review the broker’s accounts.

    The cause of the shortfall —including whether the company pilfered client funds or merely cannot account for the money — was not clear.

    The Federal Bureau of Investigation is showing preliminary interest in regulatory probes, a person briefed on the matter said.

    MF Global did not keep customer accounts separate from the firm’s funds, said Craig Donohue, CEO of exchange operator and market regulator CME Group. Even though the client money could eventually be accounted for, the regulator believes the firm broke the segregation rules.

    Another regulator, the Commodity Futures Trading Commission, voted to issue subpoenas to the firm.

    Neither MF Global nor Corzine has been accused of any wrongdoing.

    U.S. federal regulators discovered that hundreds of millions of dollars in customer money — supposed to be segregated and protected from the rest of the business — had gone missing, U.S. media reported Tuesday.

    At the U.S. Bankruptcy Court in Manhattan, MF Global’s lead attorney, Ken Ziman, said all of the funds in the company’s broker dealer are accounted for.

    To management’s best knowledge, “there are no shortfalls” in brokerage accounts, said Ziman, of law firm Skadden, Arps, Slate, Meagher & Flom, as MF Global’s first bankruptcy hearing began Tuesday.

    The fall of the brokerage led by Corzine, ex-Goldman Sachs Group boss and former New Jersey governor, sent shockwaves through commodity markets.

    “This episode is making the industry really scared,” said Pinaki Rath, managing director of Singapore-based trader Gold Matrix Resources. “We are talking to other brokers on how we can guard against future failing of a clearing member.”

    While MF Global began what could be a complicated process of liquidating customer positions, some customers feared that millions of dollars were tied up in bankruptcy. Others expected lawsuits, according to interviews with brokers, funds and lawyers.

    “We’re basically putting out fires,” said an MF Global employee. “Our customers are upset and we’re upset that they are upset.”

    A company spokeswoman declined to comment.

    On Tuesday night, the Investment Industry Regulatory Organization of Canada announced the suspension of MF Global Canada Co.

    Trading in Australian agricultural futures and options on the ASX 24 platform resumed yesterday after being suspended following the collapse of MF Global, exchange operator ASX Ltd. said.

    “We are now in the process of reviewing all of the companies’ information available to us from the records of MFGA and MFGS, with a view to ensuring that customer positions are identified and reconciled,” administrator Deloitte said in a note to MF Global’s Australian customers.

    MF Global had US$7.3 billion in customer assets Aug. 31, according to Commodity Futures Trading Commission data. It was the eighth largest U.S. futures broker and had a big presence in commodity markets worldwide. The company filed for Chapter 11 bankruptcy Monday after failing to find a buyer.

    Bets Corzine made on euro zone sovereign debt led to a plunge in the company’s stock last week and credit rating agencies cut its debt to junk. Its collapse over less than a week was reminiscent of, although smaller than, investment bank Lehman Brothers in 2008.

(SD-Agencies)