© Reuters/Andrew Kelly
A woman leaves the office complex where MF Global Holdings Ltd have an office on 52nd Street in midtown Manhattan, October 29, 2011.
When the CME Group pledged $300 million of its own money to help former MF Global customers get their cash back faster, the exchange was likely thinking of customers like Kansas cattle rancher Tim Rietzke.

Fed up and frustrated with his broker's collapse and what he sees as the CME's slow efforts to help him retrieve $30,000 in stranded capital, Rietzke says his faith in the futures industry has been shaken to its core.

"I would be hedging some feeder cattle right now, but I'm not going to do it. I'm leaving them exposed to the cash market and I don't like that," Rietzke said.

Rietzke may reside far from the trading pit in Chicago, but he and thousands of other ranchers and farmers across the country are at the heart of futures trading.

With billions of their dollars locked up by MF Global's October 31 bankruptcy filing, they are a key voice in determining if and when the futures business regains its poise and reputation.

"I have no confidence in the market, because it could happen at any other brokerage," Rietzke told Reuters from his 8,000 acre ranch near the southwest Kansas town of Coldwater.

Dozens of other market participants, most of them smaller introducing brokers or independent traders, say the painful lesson of MF Global is forcing them to reconsider a livelihood in the market and how they hedge future crops and livestock.

Some, like Rietzke, could reduce their hedging, or cut back on day-trading; others may take up trading exchange-traded funds (ETF) that track commodity prices, but are backed by a brokerage insurance fund by securities regulators.

While trading activity in New York and Chicago has recovered following a slump immediately after MF Global's collapse, exchange officials and experts fear the crisis -- as well as its messy, protracted aftermath -- may have a chilling effect on the markets for months or years.

As the symbolic figurehead of the futures universe thanks to its ownership of both the Chicago Board of Trade and the New York Mercantile Exchange, the world's biggest agricultural and energy markets, it is the CME Group that -- to many traders -- bears an enormous burden for making things right.

Monday's news that the missing funds at MF Global may have doubled to $1.2 billion has only deepened the mistrust of the system.

"I'm pretty confused and discouraged and not sure what the future holds," said Tony Rohrs, who farms corn, soybeans and wheat in Ohio, and had hedge accounts at MF Global.

All Talk?

It remains to be seen just how much talk of quitting the market is bluster. Traders are livid over both MF Global's collapse and what they perceive as the CME Group's failure to act quickly or boldly enough to restore order to the market -- a criticism that some analysts and experts say is misplaced.

And there are reasons to think that a wide-scale boycott by smaller traders of the futures market will not occur. The risk of exposure to high and volatile commodity prices is greater than ever; and there are no viable substitutes for most of the CME's key agricultural contracts.

Take, for example, the plight of Andy Belshan, who runs a grain elevator business in Albert Lea, a town of 18,000 in southern Minnesota. Belshan buys corn and soybeans from about 75 local farmers for further resale on the market.

By entering into future-delivery contracts with farms, elevators like Belshan's provide a crucial hedging service to small farmers throughout rural America. Belshan then hedged his own risks through MF Global, run by former Goldman Sachs & Co Inc chief and New Jersey governor Jon Corzine before its bankruptcy.

After the bankruptcy filing, Belshan's positions were transferred to another broker. But his accounts are still short a significant amount, he says.

"The customer funds we had for a hedge position, that's the bedrock that the system is supposed to be built upon," said. "Somebody dropped the ball and let those funds go somewhere. If something doesn't get fixed, it will have a ripple effect" in the rural economy.

Crisis of Confidence

The victims of MF Global's bankruptcy have experienced a range of emotions, from anger and betrayal over the missing funds to criticism of regulators being slow to spot problems.

With billions of dollars still frozen at MF Global, the outrage has turned to the CME Group for failing to help its customers regain speedy access to their accounts.

Far more than the failure of Refco six years ago, MF Global's downfall has triggered a call to arms for medium-and small-scale traders across the marketplace who say it has exposed previously obscured risks in the system -- and the fact that there's no 'white knight' to save them.

"The exchange should make this right. Let them hold the bag instead of us," says cattle broker Lynn Wagnon. "We can't trust the system anymore."

So far, the CME has offered $300 million to help MF Global's bankruptcy trustee make up for potential customer losses. But even that measure has been criticized. Some of the MF Global's former clients argued in a recent court filing that the guarantee was "an insufficient band-aid, at best."

Some $50 million of the offer is from an emergency fund that will help make up for any customer account shortfall; the remainder is simply a "limited guarantee" to allow the trustee to return client funds more quickly.

Crain's Chicago Business wrote in an editorial that the CME had suffered "a dramatic and unforgivable void in leadership."

CME's shares have fallen nearly 14 percent since the day before MF Global's collapse through to Monday's close.

The CME says it is doing what it can to deal with a crisis it says is "uncharted territory for this industry."

"We certainly understand there is a lot of frustration and confusion," spokesman Chris Grams told Reuters.

"We also understand time is of the essence to our customers and we are focused on working with the Trustee to get as much of the seg(regated) funds accounts returned to market participants as quickly as possible."

While the raw emotions of hard-hit farmers and brokers may make their anger at the CME understandable, others agreed that criticism of the Chicago exchange is overblown.

"I think a lot of the anger is misplaced," says Jeff Malec, the chief executive of Attain Capital Management, who has called on CME to do more to minimize the damage to the futures market.

"I don't think they were asleep at the wheel; they were hoodwinked, it could have happened to anyone. If there's fraud going on, it doesn't matter who's in charge," said Malec.

Neither MF Global nor Corzine has been charged by authorities with any wrongdoing.

For Traders or Profit?

And yet many traders still look to the CME Group to make it right somehow, a sentiment that dates back more than a century to the CME's roots as the Chicago Butter and Egg Board. Until its listing in 2002, the Chicago Mercantile Exchange was run as a member-owned club, providing a degree of comfort to traders that the exchange had their best interests at heart.

But as big money hedge funds replaced traders as its main constituency, the CME focused on boosting profits, buying first the Chicago Board of Trade in 2007 and the New York Mercantile Exchange the following year, even as exchange members complained loudly they were being short-changed by the deals.

CME executives regularly emphasize they are bound to put their "fiduciary duty" to shareholders above any loyalty to their members and Chicago, promising this year they will leave the city -- the home of many of their traders -- unless the state reverses a tax hike made earlier this year.

That shift in allegiance may be fueling criticism from market participants.

Some said the handling of position transfers after MF Global's bankruptcy, a significant but not unprecedented undertaking, was flawed. Certain accounts, particularly those with many options positions, were transferred with the wrong amount of collateral.

"They didn't seem to understand what short/long option value means and how you net them out. We couldn't believe it," said one senior executive with a major futures commission merchant. "Criticism is starting to surface of the CME leaders. It's really hurting the credibility of the exchange."

That view is certainly playing out in southern Minnesota at Belshan's grain elevator business. "Maybe CME is to blame because they've been trying to increase volume," he said. "The more they trade the more money they make."

John Damgard, president of the Futures Industry Association, said the market will have to spend "a long time winning back customer confidence."

"I have full confidence that we will do that. The growth of the markets proved how incredibly valuable these instruments have become. It's just that now there are questions like: if it can happen at MF Global, can it happen some place else?"

Alternatives Emerging

But now, with the advent of new securities products that often mimic commodity prices, traders do have some choice.

If you don't want to trade the CME's COMEX gold futures contract, for example, you can always trade the SPDR GLD, the world's biggest physically-backed gold contract. Crude oil, corn and copper also boast ETFs that trade like stocks -- and, more importantly, offer better guarantees.

Unlike securities investors or bank depositors, futures customers generally have no federal insurance when their broker goes bust.

The Securities Investor Protection Corp, a broker-funded insurance vehicle, has authority to use its own funds to pay back securities customers up to $500,000 per account when brokerages fail -- an attractive proposition for speculators.

After the tech stock bubble burst a decade ago, equity traders turned to the Chicago futures pit to trade the e-Mini CME contract, essentially a scaled-down version of the S&P 500 futures.

Futures trading boomed, rising three-fold since 2004.

While the e-Mini contracts are still the preferred product due to their liquidity and tight spreads, some traders are already looking to step up ETF activity, says John Lothian, a noted Chicago trading advisor and commentator.

"This MF Global issue has the potential, depending upon how it all plays out, to be a similar milestone," said Lothian.

One measure that might forestall such a switch is now gaining currency: the creation of a SIPC-like fund that will extend insurance coverage to commodity accounts, protecting everyone from farmers to day traders.

Similar insurance systems already exist in several states, designed to help farmers in case their elevator goes bankrupt, says Christopher Hurt, an agricultural economist at Purdue University in Indiana.

Whether that occurs or not, it is clear to most that something will need to be done to restore trust.

"The elevators and farmers, through no fault of their own, got caught up in this (mess)," said Bob Zelenka, executive director of the Minnesota Grain and Feed Association that's been fielding distress calls from farmers and brokers.