The CFTC Proposes a Rule to Enhance Customer Protections
The Commodity Futures Trading Commission (CFTC) has voted on a proposal to introduce a new rule aimed at strengthening safeguards for individuals trading through a derivatives clearing organization. This rule, called the “Protection of clearing member funds held by derivatives clearing organizations,” would require registered DCOs to establish a clear separation between customer funds and their internal funds.
Opposing Votes and Motivations
Commissioners Summer Mersinger and Christy Goldsmith Romero opposed the vote, while Commissioners Kristin Johnson and Chair Rostin Behnam supported it. Commissioner Caroline Pham concurred. The proposal will now be open for public comments.
The FTX collapse last year, which resulted in the compromise of billions of dollars in customer funds, was one of the motivations behind this initiative. Commissioner Johnson emphasized this during the meeting, stating that it highlighted the risks customers face without regulations preventing the commingling of funds.
Addressing Clearing Member Funds
CFTC Chair Behnam supported the new rule, noting that while there are safeguards in place for customers of futures commissions merchants, there is a lack of protection for clearing members of derivatives clearing organizations. The proposed rule aims to ensure proper treatment of clearing member funds in case of bankruptcy by requiring segregation from the DCO’s own funds and holding them in a depository that acknowledges their ownership by clearing members.
Granting a License to Bitnomial
In addition to the proposed rule, the commission also granted a license to Bitnomial, a crypto derivatives exchange. This license allows Bitnomial to operate as a derivatives clearing organization and clear futures and options trades. Bitnomial claims to be the first and only crypto-native exchange with a full set of U.S. derivatives licenses.
Hot Take: Strengthening Protections in the Crypto Market
The CFTC’s proposal for a new rule to enhance customer protections in the derivatives clearing market is a significant step towards safeguarding individuals’ funds. The FTX collapse and subsequent misappropriation of customer funds highlighted the need for stricter regulations and separation of customer and internal funds. By establishing clear guidelines for registered DCOs, this rule aims to prevent such incidents and provide better protection for retail investors. Additionally, granting a license to Bitnomial as a crypto derivatives exchange further solidifies the regulatory framework in the crypto market. These measures demonstrate the CFTC’s commitment to fostering a safe and transparent environment for participants in the crypto industry.
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