By Ann Saphir and Douwe Miedema

Bankrupt brokerage MF Global Holding Ltd <MF.N> failed to protect customer accounts by keeping them separate from its own funds, a top U.S. exchange regulator said on Tuesday.

The revelation by CME Group Inc <CME.O>, MF Global's immediate regulator, suggests the broker violated a central tenet of futures brokerages. It could put client money at risk and erode confidence in a market that for decades has enjoyed a sterling reputation for safety.

The fall of the brokerage led by ex-Goldman Sachs <GS.N> boss and former New Jersey governor Jon Corzine sent shockwaves through commodity markets on Tuesday as futures traders feared the damage could spread or that similar problems could hit other brokers.

The New York Times, meanwhile, reported that 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.

MF Global had $7.3 billion in customer assets on August 31, according to the latest data from the Commodity Futures Trading Commission.

MF Global filed for Chapter 11 bankruptcy on Monday after failing to find a buyer. Bets Corzine made on euro zone sovereign debt led a plunge in the company's stock last week, and caused agencies to cut its ratings to junk.

MF Global is the eighth-largest U.S. futures broker, and is a big player in commodity markets globally. Its collapse over less than a week was smaller, though reminiscent of that of investment bank Lehman Brothers in 2008.

MF Global did not keep customers' accounts separate from the firm's funds, CME Chief Executive Craig Donohue said on a conference call. "CME has determined MF Global is not in compliance with Commodity Futures Trading Commission and CME customer segregation requirements."

Asked if CME's clearinghouse would be on the hook for any losses, Donohue said that it would not be. The same may not go for customers. "There's always the risk as well that customer funds are not properly protected," he said.

CME is MF Global's main exchange regulator and is responsible for ensuring that its clearing members stay in compliance with rules on customer funds.

"When you have a dent in one of the foremost protections, it's going to cast a pall over the market as a whole," said Michael Greenberger, a former director of the U.S. Commodity Futures Trading Commission's trading and markets division.

"I'm sure that customers of MF Global are not feeling very good right now, and (are) madly investigating their rights and the facts of this case," said Greenberger, a University of Maryland law professor.

KPMG, appointed as administrators to MF Global's British arm, said it had been busy closing out positions all day under a new UK regime set up to prevent a repeat of the slow and painful work-out of the Lehman collapse.

Fleming said he was confident clients would see their money again. "Our strategy this morning has been ... where we have clients whose position is reconciled, and are due funds, then that money will flow."

Lehman's bankruptcy is still being disputed, with clients often unable to get access to frozen assets for several years.

WIDER IMPACT

The bankruptcy filing put a sudden end to Corzine's drive to transform the more than 200-year-old MF Global into a mini Goldman, and made it the most prominent U.S. victim of the euro zone debt crisis.

In Australia, trading in grain futures and options was suspended by bourse operator ASX Ltd <ASX.AX>, prompting concerns about the integrity of the country's agricultural futures market.

The London Metal Exchange and the U.S. Options Clearing Corporation suspended MF Global, following a similar move by the CME Group, which operates the Chicago Mercantile Exchange.

The news also hurt other commodity markets.

CME Group data showed volumes on December corn options almost halved on Monday to 33,872 contracts, from Friday's volume of 61,714 contracts.

Fears the collapse might hurt other market players spread on what was already a dark day for stock markets in Europe, after Greece said it would subject its bail-out to a referendum, deepening the sense of crisis in Europe.

European stocks suffered their biggest one-day sell-off in a month after the news out of Greece. U.S. stocks also tumbled.

(Additional reporting by the London commodities team. Writing by Jonathan Spicer in New York; Editing by Helen Massy-Beresford and Robert MacMillan)