- CFTC voted on a new rule to strengthen protections for customer funds after the FTX collapse revealed improper commingling of deposits. The rule requires clearing organizations to separate client money.
- The rule aims to fix a gap where current protections only apply to futures commission merchants, not clearing members. It passed 3-2 after a divided CFTC vote.
- The CFTC also approved crypto exchange Bitnomial as the first crypto-native US clearinghouse. This comes as regulators seek to reform the crypto sector after issues highlighted by FTX failure.
The stunning collapse of cryptocurrency exchange FTX has prompted the Commodity Futures Trading Commission (CFTC) to take action to better protect customer funds. In a recent meeting, the CFTC voted on a new rule aimed at enhancing safeguards for individuals trading derivatives through clearing organizations.
Background on FTX Collapse
FTX, which was not registered with the CFTC, fell into bankruptcy last year when it was revealed the exchange had improperly commingled customer funds. The company’s CEO Sam Bankman-Fried has since been indicted for allegedly misappropriating billions in customer deposits. The FTX debacle highlighted the need for stricter regulation around segregating client funds.
New CFTC Rule
The proposed CFTC rule, called “Protection of clearing member funds held by derivatives clearing organizations,” would require registered clearing organizations to completely separate customer funds from their own. Clearing member funds would need to be held at a depository that acknowledges in writing the money belongs to clearing members, not the organization itself.
According to CFTC Chair Rostin Behnam, current protections only apply to futures commission merchants and not clearing members of derivatives clearing organizations. The new rule aims to fix this gap.
Voting and Reactions
The CFTC voted 3-2 in favor of the proposal. Commissioners Summer Mersinger and Christy Goldsmith Romero opposed it, while Chair Behnam and Commissioner Kristin Johnson supported it. The rule will now go through a public comment period before being finalized.
Commissioner Johnson stated the FTX failure showed the need for prohibiting commingling of customer funds. Chair Behnam said the rule would ensure proper treatment of member funds if a clearing organization enters bankruptcy.
The CFTC also voted to grant derivatives exchange Bitnomial a license to operate as a clearing organization. This move makes Bitnomial the first crypto-native exchange approved as a US clearinghouse.
Conclusion
The CFTC’s proposed rule change directly targets issues that came to light during FTX’s unraveling. By requiring strict separation of customer deposits, regulators aim to prevent another crisis where client funds are jeopardized by an exchange’s poor financial controls. Whether the new policy is ultimately sufficient to reform the crypto derivatives sector remains to be seen.
