The Chief Executive Officer (CEO) of the FTX crypto exchange Sam Bankman-Fried, has said he supports knowledge tests for retail derivatives traders and disclosures on the associated platforms citing the protection of retail investors.
The announcement was in response to a proposal by Christy Goldsmith Romero, a commissioner of the Commodity Futures Trading Commission (CFTC), on new retail investor definition and categorization. In an October 15 Twitter post, Romero opined that a ‘household retail investor’ division for derivatives trading would be a value addition, guaranteeing better consumer protection measures. The tweet read:
“Establishing a household retail investor category could give them more consumer protections. For example, disclosures are written in a way that regular people understand or could be used when weighing rules on the use of leverage.”
Romero also acknowledged the cryptocurrency industry’s role in leading more retail traders to invest in derivatives markets, calling upon the CFTC to distinguish retail investors from high-net-worth and professional investors.
Responding to Romero’s idea, the FTX Bankman-Fried declared his support for knowledge tests and disclosures for retail derivatives traders and trading platforms. The executive quoted Romero’s tweet in his post, saying:
“100% agree on disclosures, knowledge tests, etc. FWIW I don’t know that it necessarily makes sense to be crypto-specific–I think that having, at least, mandates for disclosures and knowledge-based tests for all FCMs/DCMs facing retail could make sense.”
Bankman-Fried asserted his confidence that requiring disclosures and knowledge tests for Future Commissions Merchants (FCMs) and Designated Contract Markets (DCMs) in retail trading “could make sense.” In his opinion, one of the ways to achieve this is publishing disclosures so that even the everyday investor can comprehend or that it could serve in the assessment of leverage use regulations.
The CEO also disclosed that the exchange has already launched a knowledge test that could be supported for the platform.
Despite his approval, the FTX CEO believes it would be insensible to limit the knowledge tests and disclosures to crypto alone, noting that they need to apply to all derivative products. These remarks come after FTX exchange’s US-based subsidiary, FTX US, hinted at plans to unveil a crypto derivatives trading platform.
CFTC To Become A Crypto Regulator
The Commodity Futures Trading Commission has been taking strides to secure a position as the ideal regulatory body for the crypto market across the U.S. This comes after intense calls for regulatory clarity around the crypto space in the country. The Security and Exchange Commission (SEC) is taking the lead. On September 27, a CFTC commissioner, Caroline Pham, announced that CFTC needed to set up an office similar to that of the SEC, purposely for crypto retail investments to expand its consumer protection efforts.
What Is Derivatives Trading?
Derivatives trading is speculating on the future price of stock, crypto, commodity, fiat currency, or any other financial asset. It entails transacting in derivatives contracts through leverage. On the other hand, Designated Contract Markets (DCMs) are CFTC-regulated derivative exchanges. The exchanges offer options and FCM-accessible futures, among other trading products. Noteworthy, FCMs accept or require buy and sell orders on futures and futures options contracts from traders.