Health of FTX’s US Derivatives Arm Owed to Oversight, Says CFTC Chief Behnam

The former LedgerX unit seems to be in good shape, Behnam said at a Chicago event, though its controversial application to directly clear customers’ derivatives trades was withdrawn.

AccessTimeIconNov 14, 2022 at 4:43 p.m. UTC
Updated Nov 14, 2022 at 6:11 p.m. UTC

FTX’s U.S. derivatives-trading subsidiary – the former LedgerX – remains standing while other parts of Sam Bankman-Fried’s empire crumble, and that could be credited to its government oversight, said Rostin Behnam, chairman of the U.S. Commodity Futures Trading Commission (CFTC).

That part of the company, known now as FTX US Derivatives, has not been pulled into the bankruptcy filings of FTX’s U.S. operations.

“The reason is because – I believe pretty strongly – that they are very clearly regulated by the CFTC,” Behnam said Monday at a Futures Industry Association (FIA) event in Chicago. “It's a testament to CFTC regulations and CFTC staff and the benefit of having clear, transparent rules.”

The derivatives-trading operation had been registered with the CFTC well before it was acquired by FTX. Behnam said his agency has been in direct contact with the company and its custodial operations on a daily basis rather than the usual monthly reporting “to ensure member property is where it’s supposed to be.”

“We’re pleased with where we are,” Behnam said. He added that “a lot remains to be seen over the next couple of days, weeks and months, but we’re being certainly vigilant.”

FTX US Derivatives also became the focus of heavy attention in the past year when it applied to directly clear its customers’ margin-backed, crypto derivatives trades, which then-FTX CEO Sam Bankman-Fried personally argued for during a roundtable in which he made the case that eliminating clearing firms was a viable future path. However, the application that once represented a major crypto industry foray into the territory of traditional financial firms has now been formally withdrawn.

As for the CFTC’s enforcement powers, when Behnam was asked whether the agency would take action against FTX, he said he couldn’t comment on specific plans. However, he pointed out the CFTC does have authority over fraud and manipulation in the direct trading of crypto commodities, which would include bitcoin.

“We will use that authority to the full extent of the law,” Behnam said.

This latest crypto crisis also underlines the need for Congress to move quickly to establish regulatory controls, the chairman argued.

“We don't have the luxury of time anymore,” he said.


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