The crash of Sam Bankman Fried-led crypto exchange FTX has been described as another Lehman shock in the financial sector that plunged most firms to liquidity. The aftermath of the FTX challenged the regulators to team up with the key industrial players to prevent the recurrence of a similar case.
In a recent update, the chair of the Commodities Futures Trading Commission (CFTC), Rostin Behman, regretted that the efforts made to prevent the occurrence of another market shock have proven futile.
CFTC Executive Predict Recurrence of Another FTX-Like Incident
Addressing the Georgetown University Financial Markets Quality Conference, Mr Behnam lamented that the commission could not prevent another FTX scandal. He admitted that a year after the crash of the FTX that triggered a domino effect on the crypto industry, and nothing has changed.
He regretted that despite the efforts to adopt stringent rules for digital assets, another FTX-like scenario might occur. In his address, Behnam briefed on the change in the regulatory framework for crypto investments.
He noted that most of the features of the existing regulation for digital assets have remained untouched. The official stated that the potential gaps in the regulatory framework have broadened market vulnerabilities in the crypto space. These bottlenecks might allow the occurrence of another FTX incident.
He observed that most of the regulatory challenges in the crypto sector emanated from the lack of comprehensive oversight of digital assets. According to Behnam the powers conferred to the CFTC, has enabled the commission has attained remarkable achievement in supervising the US derivative markets, which include the commodity futures, swap markets, and over-the-counter (OTC) markets.
CFTC Pushes For Clear Regulation for Crypto Assets
While supervising the derivatives markets, he confessed that some products under the CFTC supervisor have close relations with other products that fall under the US Securities and Exchange Commission (SEC).
Behnam stated that guided by the securities and federal laws; the CFTC has been barred from supervising financial products grouped under the spot markets. The official admitted that the CFTC can only address price manipulation and fraudulent schemes in the spot markets.
However, based on the broad nature of the spot market, Behnam believes that if the CFTC could be allowed to exercise power in some of the areas of the digital industry, such as regulating exchanges, crypto-related crimes could be reduced.
In an earlier post, the CFTC official Behnam admitted that the last year before FTX collapsed, the crypto exchange had been in talks with CFTC. He acknowledged that the CFTC and FTX had established a solid regulatory relationship.
The executive stated that the FTX had established a clearing house regulated by the CFTC. Behnam added that due to the changes in regulation surrounding digital assets, the CFTC instructed the FTX to revise its application for the clearing house dubbed LedgerX.
Impact of FTX Saga on Crypto Regulation
Initially, FTX acquired LedgerX from Ledger Holding International at an undisclosed amount. The primary objective of acquiring LedgerX was to allow the customers to settle margin trades without the involvement of a third party.
The FTX team anticipated that through the acquisition of LedgerX, the crypto exchange would offer the customer industry-leading products and regulated crypto derivatives. This forced the exchange to engage the CFTC to ensure the products provided by its FTX US Derivatives (formerly LedgerX).
In response to the CFTC request, the distressed crypto exchange collaborated with the regulators and amended the application to meet the required compliance standards. After application, the CFTC rejected the LedgerX, application, citing noncompliance with the law.
Besides analysing the FTX saga, Behnam admitted that as the market regulators in the US prepare to provide regulatory clarity on digital assets, some of the provisions have competing interests. Referring to the Financial Services and the Agriculture Committee case, Behnam admitted the bill passed by the two regulatory agencies aligns with the CFTC core objective.
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