FTX already clears some trades directly, but the proposal would for the first time allow it to do so for crypto futures bought on margin by retail investors. The firm would put up $250 million of its own capital to backstop losses if buyers or sellers can’t fulfill their obligations. That contrasts with the model used by CME, which requires that its member brokers kick money into a communal fund to cover defaults.
“It’s a sea change in how the futures industry has worked up to now,” said Julian Hammar, a partner at law firm FisherBroyles who previously worked at the CFTC.
FTX’s bid has its own supporters on Wall Street including Nasdaq Inc. Executive Vice President Tal Cohen, who called it “a great step forward” in a recent interview. Anthony Scaramucci, the founder of SkyBridge Capital, said the plan to cut out middlemen would benefit investors by reducing costs and making the market more efficient.
Even as the CFTC deliberates, the industry is taking the fight to Capitol Hill. When the agency’s chairman, Rostin Behnam, testified March 31 before the House Agriculture Committee, he was grilled over FTX’s plan.
ICE and CME have long been major contributors to lawmakers from both parties on the panel, which oversees the CFTC. David Scott, a Georgia Democrat who chairs the committee, warned the proposal “could very well make our derivatives regulatory system riskier and our customer protections weaker.”
Behnam told lawmakers his agency is proceeding cautiously, but would fairly consider FTX’s plan. He compared it to the transition to electronic trading 30 years ago -- an idea that was initially met with resistance.
FTX executives argue that their proposal is intended to offer an alternative way of trading, not to bypass intermediaries entirely. The CFTC will also get to weigh in on whether it could be applied beyond crypto, they said.
“It’s just a natural human behavior to respond a certain way when something seems new or novel,” said Mark Wetjen, a former CFTC commissioner who’s now head of policy and regulatory strategy for FTX’s U.S. arm.
-With assistance from Beth Williams.
This article was provided by Bloomberg News.