[ by Melanie Gretchen ] According to Representative Barney Frank, the CME Group - which operates the Chicago Mercantile Exchange - has serious conflicts of interest that can only be resolved by splitting up the regulator.  Mr. Frank, who will retire from Congress at year's end, is the leading Democrat on the House Financial Services. Mr. Frank recommends that the largest U.S. futures exchange spin off its regulatory functions from its market exchange operations.  He says the change would help restore investors' confidence in domestic futures markets, while adding, "I have no doubt about the CME's integrity, but nobody should be in the position of having a dual role." What the CME Does. Between the Chicago Mercantile Exchange, the CBT (Chicago Board of Trade), and the New York Merc (Mercantile Exchange), the CME oversees 90% of U.S. trade in futures on the price of grains, crude oil, and key interest rates.  And that's in addition to regulating the exchange level for nearly 100 futures clearing firms in the U.S. that process the trading of customers - e.g., asset managers, grain elevators, power companies. The CME also is responsible for auditing those firms, checking customer fund balances and confirming that money is invested in permitted securities.  About 150 people work in its market-regulation division - 60 of them perform regulatory audits for CME's clearinghouse division. The U.S. Futures Industry. While the CME and the CFTC have been criticized for not preventing MF Global's collapse or lessening the disruptive aftermath that crippled customers and counterparties, alike - particularly the missing $1.2 billion in customer funds that are still missing, the commodities and futures industry has defended its self-regulatory model.  CME Executive Chairman Terrence Duffy recently told a House panel that, with regard to MF Global, "We have a huge interest to make sure nothing goes wrong." Frank's Inspiration and Model for a Split. Mr. Frank referred to the separation of the Nasdaq Stock Market, now owned by Nasdaq OMX Group Inc., from NASD, which in part, was driven by the need to separate the regulatory function from the for-profit exchange operation.  That process began in 2000, and NASD later merged with certain units of NYSE Regulation to become FINRA.  "I think it would be better if they did what NASD did," Rep. Frank said. [WSJ, 12/17/11]