cftc

Bankman-Fried faces down roomful of futures industry insiders at CFTC roundtable

The discussion of FTX.US’s proposal for non-intermediated margined products clearing highlighted unknown factors and the need for more regulatory framework.

FTX CEO Sam Bankman-Fried did a lot of talking at the United States Commodity Futures Trading Commission (CFTC) staff roundtable on non-intermediation Wednesday. He fielded questions and issues from 31 industry professionals about the FTX.US application to offer clearing of margined products, including crypto-based products, without a futures commission merchant (FCM) intermediary. 

Many participants felt the need to mention their devotion to innovation and declared that they do not see the proposed new technology as an “us versus them” situation. Joe Cisewski of Pantera Capital said that just six or eight clearing firms dominate the U.S. market at present, so new competition would not be out of place. Like many others present, he saw the need for more regulatory framework for this new trading model.

“We don’t know what a crypto margin is,” said Hilary Allen, professor of law at American University. Allison Lurton of the Futures Industry Association (FIA) emphasized that FCM regulations are prescriptive and not principles-based because of the merchants’ “core position” in the system, and many rules and regulations would have to be revised for the proposed non-intermediated trading system.

Christine Parker of Coinbase said, “We don’t really have a good view of what a retail trader in the crypto space […] would design in a market.” Parker, commenting on the company’s experience outside the U.S., said crypto trading does not follow the patterns of traditional commodities. She was one of several people who considered trading options abroad superior to those in the U.S.

Several people also pointed out the ways in which the current system intentionally differs from the automated solution FTX is proposing. The framework for 24-hour clearing already exists, Lurton and others pointed out, but there are reasons not to use it. The proposed trading algorithm would have to respond to unexpected situations, Allen said, noting:

“That’s not what algorithms do, […] that’s what regulators are for.”

Todd Phillips of the Center for American Progress suggested that the role of the CFTC is to make sure investment products are appropriate for consumers. Possible round-the-clock clearing “isn’t something we want our retail investors getting into,” he said. Bankman-Fried took umbrage at this suggestion, calling it condescending and saying that “a lot of people know more than the people in this room” about margined trading.

“I was expecting something far more contentious,” moderator Robert Steigerwald of the Federal Reserve Bank of Chicago said later in the six-and-a-half-hour session.

Commissioner Kristin Johnson to sponsor CFTC Market Risk Advisory Committee

The crypto hawk Biden appointee will sponsor a panel of 36 financial industry executives, thought leaders and other prominent figures.

United States Commodity Futures Trading Commission (CFTC) commissioner Kristin N. Johnson was named the sponsor of the agency’s Market Risk Advisory Committee (MRAC) on Tuesday. She replaced CFTC chair Rostin Behnam in that role.

Johnson was nominated to be a CFTC commissioner by U.S. President Joe Biden in September 2021, concurrent to the nominations of commissioner Christy Goldsmith Romero and acting chairman Behnam as the permanent chair. Johnson was sworn in on March 30. She moved into the position after spending over a decade as a law professor. Johnson is the author of academic papers in which she has advocated for stricter controls over cryptocurrency. Johnson said in a statement:

“Having spent my career in risk management oversight, I appreciate the MRAC’s significant and critical role in advising the Commission on risk management in our markets including the emerging decentralized market structures in digital asset or cryptocurrency markets that may not rely on intermediation.”

Sponsorships were allotted among the five CFTC commissioners Tuesday for five out of the six CFTC committees, with the exception being the CFTC-SEC Joint Advisory Committee. The MRAC is made up of 36 industry leaders in derivatives and other financial markets as well as academics and regulators. It includes members of the Federal Reserve Banks of New York and Chicago, HSBC chief operating officer Chris Dickens, Goldman Sachs managing director Amy Hong, BlackRock managing director Eileen Kiely and members of the Futures Industry Association.

Johnson will give the keynote address “exploring an appropriate regulatory framework for [..] the burgeoning decentralized digital asset market” at the FIA’s International Derivatives Expo in London on June 8.

BitMEX launches spot crypto exchange following $30M penalty

Founded in 2014, BitMEX is one of the world’s oldest crypto trading platforms, but it has never offered spot crypto trading till now.

Global crypto derivatives exchange BitMEX is expanding its platform beyond just derivatives by finally launching a spot crypto trading platform.

BitMEX officially announced on May 17 that its spot crypto exchange, the BitMEX Spot Exchange, is now live, allowing retail and institutional investors to buy, sell and trade cryptocurrencies like Bitcoin (BTC) and Ether (ETH).

At launch, the exchange supports seven pairs of cryptocurrencies, including BTC, ETH, Chainlink (LINK), Uniswap (UNI), Polygon (MATIC), Axie Infinity (AXS) and ApeCoin (APE), all trading against the Tether stablecoin (USDT).

The launch of the BitMEX Spot Exchange comes as the company plans to become one of the top ten largest spot exchanges in the world. The company decided to build its own spot exchange last year in response to the increasing crypto trading demand from its current user base, according to the announcement.

“Today, BitMEX is one step closer to providing our users with a full crypto ecosystem to buy, sell and trade their favorite digital assets. We will not rest as we aim to deliver more features, more trading pairs, and more ways for our clients to take part in the crypto revolution,” BitMEX CEO Alexander Höpner said.

Founded in 2014, BitMEX is one of the world’s largest and oldest crypto trading companies and started to provide its services about six years after Bitcoin was launched. Unlike spot exchanges, BitMEX has been mainly focusing on derivatives, allowing users to buy and sell contracts like futures, options and perpetuals on a wide range of crypto assets.

At the time of writing, BitMEX is one of the top 30 biggest derivatives crypto trading platforms, with daily trading volume amounting to $841 million, according to data from CoinMarketCap. BitMEX was ranked one of the biggest derivatives platforms by open interest alongside Binance as of 2020.

BitMEX has faced some legal issues recently, with founders Arthur Hayes and Hong Konger Benjamin Delo pleading guilty to violating the Bank Secrecy Act in February 2022. The court eventually ordered a total of $30 million civil monetary penalties from the three co-founders of the BitMEX crypto derivatives exchange in March.

Related: The Brazilian Stock Exchange will launch Bitcoin and Ethereum futures

The firm also reportedly laid off about 75 employees — or a quarter of the company’s staff — in April, following a failed acquisition of the German bank Bankhaus von der Heyd.

BitMEX did not immediately respond to Cointelegraph’s request for comment. This article will be updated pending new information.

CFTC commissioner appoints senior policy adviser experienced in digital asset regulation

Keaghan Ames worked at Credit Suisse for more than two years as vice president and head of U.S. regulatory policy, which included advising executives on digital assets regulation.

Caroline Pham, currently serving as a commissioner at the United States Commodity Futures Trading Commission, or CFTC, has announced a former head of U.S. regulatory policy at investment banking firm Credit Suisse Securities will be joining her staff.

In a Friday announcement, Pham said Keaghan Ames will be her counselor and senior policy adviser at the CFTC starting May 23. Ames worked at Credit Suisse for more than two years as vice president and head of U.S. regulatory policy, which included advising executives on digital assets regulation. He will be joining the CFTC from the Institute of International Bankers, where he has been the director of government affairs since July 2021.

Sworn in as a commissioner in April, Pham is one of five heads serving at the CFTC under chair Rostin Behnam — all of whom were appointed by United States President Joe Biden. Pham is the latest commissioner to join the CFTC following the confirmation of Christy Goldsmith Romero, Summer Mersinger and Kristin Johnson.

During Ames’ time at Credit Suisse, the firm’s digital asset arm tested end-to-end fund transactions using blockchain technology, later piloting a settlement system between itself, Paxos and Instinet. In February, the company was the victim of a massive data leak concerning its account holders, reportedly including sanctioned individuals and heads of state.

Related: CFTC commissioner appoints crypto-experienced CME Group director as chief counsel

Together with the Federal Reserve, Securities and Exchange Commission, Department of the Treasury, and Financial Crimes Enforcement Network, the CFTC handles policy around digital asset regulation and enforcement in the United States. Cointelegraph reported in March that the government agency was seeking a $365 million budget for the next fiscal year based, in part, on the risks around digital asset custodians.

Cointelegraph reached out to Keaghan Ames, but did not receive a response at the time of publication.

Chairmen from the SEC and CFTC talk crypto regulation at ISDA meeting

Rostin Behnam and Gary Gensler make their positions clear in keynote addresses at the annual meeting of the ISDA with Sam Bankman-Fried in attendance.

The annual meeting of the International Swaps and Derivatives Association (ISDA) began Wednesday in Madrid. United States Securities and Exchange Commission (SEC) chairman Gary Gensler and U.S. Commodity Futures Trading Commission (CFTC) chairman Rostin Behnam were both featured as keynote speakers at the event, with Behnam speaking at the morning session, and Gensler in the afternoon.  

Behnam spoke at length about “a request for an amended order of registration as a derivatives clearing organization (DCO) by an entity seeking to offer non-intermediated clearing of margined products to retail participants,” which was transparently a reference to FTX US’s request.

“As other registered entities have expressed interest in exploring similar models, and given the potential impact on clearing members and FCMs [futures commission merchants]” […] it is paramount to be transparent and provide an opportunity to hear from the public,” Behnam said, plugging the CFTC roundtable on the subject coming up later this month.

FTX CEO Sam Bankman-Fried may have been listening as Behnam spoke, as Bankman-Fried was present at the conference and participated in a fireside chat a few hours later.

Behnam went on to recall his February Senate testimony and say that:

“I will continue advocating for and supporting legislative authority for the CFTC to develop a regulatory framework for the cash digital asset commodity market.”

Currently, the CFTC only regulates derivatives markets, although it has exerted enforcement authority over cash markets, such as the fine it imposed on Coinbase for improper reporting of exchange volume and “self-trading” in 2021.

Related story: Bipartisan bill to give CFTC authority over exchanges and stablecoins

Gensler spoke about “the intersection of crypto assets with derivatives” in his significantly shorter speech. He said:

“If platforms — whether in the decentralized or centralized finance space — offer security-based swaps, they are implicated by the securities laws and must work within our securities regime.”

Gensler stressed the need for the ISDA “to recognize that if the underlying asset is a security, the derivative must comply with securities regulations” as it develops legal standards for crypto derivatives.

Chairs from the SEC and CFTC talk crypto regulation at ISDA meeting

Rostin Behnam and Gary Gensler make their positions clear in keynote addresses at the annual meeting of the ISDA with Sam Bankman-Fried in attendance.

The annual meeting of the International Swaps and Derivatives Association (ISDA) began Wednesday in Madrid. United States Securities and Exchange Commission (SEC) Chair Gary Gensler and U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam were both featured as keynote speakers at the event, with Behnam speaking at the morning session and Gensler in the afternoon.  

Behnam spoke at length about “a request for an amended order of registration as a derivatives clearing organization (DCO) by an entity seeking to offer non-intermediated clearing of margined products to retail participants,” which was transparently a reference to FTX US’s request.

“As other registered entities have expressed interest in exploring similar models, and given the potential impact on clearing members and FCMs [futures commission merchants] […] it is paramount to be transparent and provide an opportunity to hear from the public,” Behnam said, plugging the CFTC roundtable on the subject coming up later this month.

FTX CEO Sam Bankman-Fried may have been listening as Behnam spoke, as Bankman-Fried was present at the conference and participated in a fireside chat a few hours later.

Behnam went on to recall his February Senate testimony to say:

“I will continue advocating for and supporting legislative authority for the CFTC to develop a regulatory framework for the cash digital asset commodity market.”

Currently, the CFTC only regulates derivatives markets, although it has exerted enforcement authority over cash markets, such as the fine it imposed on Coinbase for improper reporting of exchange volume and “self-trading” in 2021.

Related story: Bipartisan bill to give CFTC authority over exchanges and stablecoins

Gensler spoke about “the intersection of crypto assets with derivatives” in his significantly shorter speech. He said:

“If platforms — whether in the decentralized or centralized finance space — offer security-based swaps, they are implicated by the securities laws and must work within our securities regime.”

Gensler stressed the need for the ISDA “to recognize that if the underlying asset is a security, the derivative must comply with securities regulations” as it develops legal standards for crypto derivatives.

CFTC commissioner appoints crypto-experienced CME Group director as chief counsel

During his time at the CME Group, Bruce Fekrat regulated crypto reference rates and helped in the development of financial products, including BTC and ETH derivatives.

Kristin Johnson, one of five commissioners currently serving at the United States Commodity Futures Trading Commission, or CFTC, has announced that a CME Group executive director with experience in crypto will be joining her staff.

In a Thursday announcement, Johnson said Bruce Fekrat will be her chief counsel at the CFTC starting on June 1. Fekrat worked as an executive director and associate general counsel at the CME Group for more than eight years, where he was lead regulatory counsel for issues including digital assets. During his time at the derivatives marketplace, he regulated cryptocurrency reference rates and helped in the development of financial products including Bitcoin (BTC) and Ether (ETH) derivatives.

Nominated by U.S. President Joe Biden in September 2021, Johnson was sworn in within days of both Christy Goldsmith Romero and Summer Mersinger filling the other vacant commissioner seats at the CFTC in March 2022 — the government agency normally has five commissioners in its panel. In addition to Fekrat, Johnson announced Lillian Cardona and Natasha Robinson Coates will join her staff as interim senior counsels.

Though former commissioner Dawn Stump previously told Cointelegraph that the CFTC “does not regulate crypto assets even if they are commodities,” having staff with experience in cryptocurrencies could potentially influence digital asset regulation in the United States. 

At present, the Securities and Exchange Commission, Federal Reserve, Treasury Department, CFTC and Financial Crimes Enforcement Network handle issues dealing with digital assets in the United States, including regulation and enforcement. However, each agency often has different jurisdictional claims, resulting in a regulatory patchwork approach many industry leaders have criticized.

Related: Bringing crypto market ‘into the light’ doesn’t address enforcement: CFTC chair

During Fekrat’s tenure at the CME Group, the derivatives marketplace launched Bitcoin futures contracts in December 2017 amid the bull run and later went on to introduce micro Bitcoin futures in May 2021 and micro Ether futures in December 2021. In March, the group announced it would launch options trading for its micro Bitcoin and Ether futures products, subject to regulatory review.

Cointelegraph reached out to Bruce Fekrat, but did not receive a response at the time of publication.

New crypto litigation tracker highlights 300 cases from SafeMoon to Pepe the Frog

The SEC, CFTC and DOJ have seven cases either resolved or ongoing this year, with the litigation against husband-wife duo Ilya Lichtenstein and Heather Morgan being the most high profile.

A new crypto litigation tracker from commercial law firm Morrison Cohen LLP shows details of more than 300 active and settled court cases since 2013.

Morrison Cohen is a New York-based firm that caters to large financial institutions, entrepreneurs and early-growth stage companies and specializes in capital markets, business litigation, real estate and bankruptcy, to name a few. The company also has a cryptocurrency litigation team.

The Morrison Cohen Cryptocurrency Litigation Tracker was published on Tuesday and contains any case development related to the United States Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ) and class action/private litigation.

The firm stated that it will regularly update the tracker “to include the key rulings in these litigations,” and it also contains a host of “articles, webinars, and podcasts” and regulatory crypto announcements from various government agencies.

According to the tracker — which is essentially a lengthy PDF document — there have been roughly 17 crypto cases that were either brought before the court or resolved in 2022 so far.

The SEC, CFTC and DOJ combined account for seven of those, with some high profile cases being the SEC v. the Barksdale siblings, who allegedly conducted a fraudulent initial coin offering (ICO) worth $124 million, and the SEC v. digital asset platform BlockFi, who agreed to pay a $100 million penalty for failing to register its crypto lending product.

The most notable of all, however, is the ongoing DOJ v.Ilya Lichtenstein and Heather Morgan case. The husband-wife duo is charged with an alleged conspiracy to launder funds relating to the 119,756 Bitcoin (BTC) Bitfinex hack in 2016. DOJ special agents were able to seize 94,000 BTC around the time of arrests in February.

This year, there may also be plenty more in the works, considering the SEC announced that it will be upping the headcount of its enforcement-focused “Crypto Assets & Cyber Unit” to 50 dedicated positions.

Related: Has New York State gone astray in its pursuit of crypto fraud?

The majority of action has been over in the class action/private arena, however, with SafeMoon attracting the most attention after the team was slapped with a class-action lawsuit over an alleged pump and dump scheme.

The class action claims the project recruited numerous celebrities to draw in investors with allegedly misleading information, with musicians such as Nick Carter, Soulja Boy, Lil Yachty and YouTubers Jake Paul and Ben Phillips all said to have promoted the BNB Chain-based token.

A unique case that seems to have mostly flown under the radar is the Halston Thayer v. Matt Furie, Chain/Saw LL and PegzDAO from March.

The trio — which includes Furie, the original creator of the beloved Pepe the Frog meme — is accused of fraudulent inducement after allegedly selling a one-of-one nonfungible token (NFT) that tanked in value following an identical NFT drop that was released for free.

“Plaintiff alleges that defendants fraudulently misrepresented the value of a Pepe the Frog NFT. Plaintiff paid $537,084 for a Pepe the Frog NFT created by Furie and sold through PegzDAO. A few weeks after the sale, PegzDAO released 46 identical NFTs for free, which allegedly reduced the value of Plaintiff’s NFT,“ Morrison Cohen wrote.

Bipartisan bill to give CFTC authority over exchanges and stablecoins

The Digital Commodity Exchange Act would give the commodities regulator the authority to determine rules for cryptocurrency developers and exchanges offering spot trading.

A bipartisan group of lawmakers in Washington, D.C., introduced an updated bill on Thursday to regulate cryptocurrency developers, dealers, exchanges and stablecoin providers, bringing them under the regulatory control of the United States Commodity Futures Trading Commission (CFTC).

The Digital Commodity Exchange Act of 2022 (DCEA) was re-introduced to Congress by Republican Representatives Glenn Thompson and Tom Emmer with support from Democrat co-sponsors Darren Soto and Ro Khanna.

The updated version includes a section covering stablecoin providers, who can register as a “fixed-value digital commodity operator.” These operators would be obligated to share how the stablecoin operates, retaining records for the regulator along with providing information on the assets backing the “fixed-value digital commodity” and how they’re secured.

As per the last bill, the DCEA would authorize the CFTC to register and regulate cryptocurrency exchanges that offer spot trading of crypto commodities — those that allow traders to buy cryptocurrencies at the current price.

The DCEA would not affect the U.S. Securities and Exchange Commission’s (SEC) regulatory power over digital asset securities offerings but instead, classify cryptocurrencies that are not securities as digital commodities to be brought under regulation by the CFTC.

Crypto exchanges would also be subject to the same rules as other commodity providers for listing new cryptocurrencies on their platforms. Exchanges must demonstrate the crypto is “not readily susceptible to manipulation” by analyzing its mechanics such as its “purpose, functionality, governance structure, distribution, and participation.”

Developers of cryptocurrencies could also voluntarily register with the CFTC and make disclosures required for public trading and listing on an exchange. A summary of the act says registration would ensure accuracy of records and public information about the crypto is standardized and could help facilitate public exchange listings.

Related: Self-regulatory organizations growing alongside new US crypto regulation

Regulatory uncertainty has afflicted cryptocurrency businesses operating in the U.S., and in a release the co-sponsors of the bill said it would help with easing the prevailing uncertainty of the current rules, with Soto saying:

“Regulatory clarity is critical for digital commodity markets to promote innovation and consumer protection. Innovators are spending up to fifty percent of start-up costs on legal fees because of the current regulatory ambiguity between what is a security and what is a commodity.”

Industry advocacy body, the Crypto Council for Innovation, called the bill “a step forward,” as it creates a “new atmosphere of opportunity without stifling innovation,” adding:

“This is one of a few bills introduced that the industry should watch closely.”

In February, CFTC chair Rostin Behnam told lawmakers during a Senate hearing on digital assets that the Commission had a lack of authority to enforce the crypto space due to differing regulations.

Behnam called the crypto space “in essence […] an unregulated market” and said more regulatory authority for the CFTC “will only allow us to see what’s going on underneath the hood.”

The bill will need to move forward to a hearing by the Agriculture Committee. If passed by the House, it will then be taken up by the Senate Agriculture Committee for discussion.

Goldman Sachs reportedly eyes FTX alliance with regulatory and public listing assistance

The reported discussion between the two CEOs of the company happened in March last month, at a time when FTX requested CFTC to eliminate the role of brokers in product offerings.

Goldman Sachs is reportedly pursuing an alliance with one of the top cryptocurrency exchanges FTX.

The chief executive officer of Goldman Sachs David Solomon reportedly met with Sam Bankman-Fried, the founder of FTX in a closed-door meeting in March to discuss various prospects of working together, reported Financial Times.

According to the report, the major points of discussion were around mitigating regulatory compliance in the United States and Goldman Sachs offered to help them, especially with the Commodity Futures Trading Commission. Apart from regulatory assistance, the Wall Street bank also offered to help with future funding rounds.

The latest report highlights the growing relationship between traditional Wall Street giants and emerging crypto companies. Goldman Sachs has also shown interest in helping FTX with its public listing. However, people familiar with the matter claimed that Bankman Fried is currently looking for more private fundraising opportunities.

Related: FTX crypto exchange wins license in Dubai to open local headquarters

FTX has racked up a valuation of $32 billion after three funding rounds ranging in hundreds of millions of dollars. The last funding round came towards the end of January when the crypto firm closed a $400 million funding round, which is also the smallest of the three funding rounds.

Goldman Sachs like many other Wall Street giants has come a long way from its early days of Bitcoin bashing and currently looking to take a pie in FTX, one of the biggest crypto market companies at the moment.

Goldman Sachs and FTX didn’t respond to requests for comments from Cointelegraph at the time of publishing.

The reports of an alliance between one of the biggest wall street banks and one of the largest crypto exchanges come at a time when FTX had filed an application with CFTC requesting to eliminate brokers such as Wall Street banks in the financial markets with its crypto futures products.