FTX Fallout Causes CFTC To Make Bold Move In Supervising Derivatives Trading

Key Points:

• The U.S. Commodity Futures Trading Commission is drafting stricter rules for derivatives exchanges to protect customer funds.
• The rules will apply to direct-to-customer trading, inspired by the FTX fallout.
• The aim is to ensure asset segregation for all such firms, driven by the recent FTX CEO conviction.

In response to the FTX fallout, the U.S. Commodity Futures Trading Commission (CFTC) is working on a draft proposal aimed at ensuring more derivatives exchanges keep client funds separate from their corporate cash.

CFTC Proposes Stricter Rules for Derivatives Exchanges Amid FTX Fallout

This move comes as part of broader efforts by U.S. regulators to prevent customer funds from being misused or lost. The draft proposal, reported by Bloomberg, seeks to expand the scope of existing regulatory safeguards to apply to exchanges that allow customers to trade without going through a brokerage firm.

Kristin Johnson, a Democratic member of the CFTC, emphasized the need for rules that mandate the segregation of customer assets, not just for crypto-related companies but for any firms employing direct-to-customer models, including those dealing with various types of derivatives.

Regulatory Response to FTX Collapse: Protecting Customer Funds at the Core

This move is prompted by the FTX fallout, which saw the exchange’s former CEO, Sam Bankman-Fried, convicted of fraud and conspiracy. Bankman-Fried had directed customer funds into risky investments, political donations, and real estate, leading to the company’s collapse.

Notably, LedgerX, a former subsidiary of FTX, successfully maintained customer and company asset separation, emerging as a solvent entity amid FTX’s bankruptcy. The CFTC had explicitly required LedgerX to segregate customer funds from its own, ensuring the safety of client assets.

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