CFTC Regulation Revision Overlooks Crypto Platforms: LedgerX Case Ignites Call for Updated Framework
Summary:
The U.S. Commodity Futures Trading Commission (CFTC) is examining how businesses manage client assets, but its latest regulations do not fully cover unique models like that of crypto platform LedgerX. These new rules require companies to invest in rapidly liquidated assets, however, the unique operational model of LedgerX, which offers direct client access, is not considered. Commissioner Kristin Johnson has highlighted concerns about how regulation can keep pace with industry changes and advocates for a revised regulatory framework that offers robust protection for all retail clients. The public has been given a 75-day window to provide feedback on the proposal.
The U.S. Commodity Futures Trading Commission (CFTC) has turned its regulatory eye towards businesses' management of customer assets. However, this new directive falls short of fully addressing the unconventional business model of crypto platform LedgerX, leaving critical operational facets open to regulatory scrutiny.
In regulatory terms, the CFTC's latest proposal agendas to improve rules for futures commission merchants (FCMs) and derivatives clearing organizations (DCOs). These entities are now obliged to put customer funds into easily convertible assets. Conversely, this update doesn't consider LedgerX's distinctive business approach.
Uniquely performing as a DCO, LedgerX establishes immediate links with customers and strays from the traditional FCMs' role as go-betweens. This throws into question how the rule should adjust to include such trailblazing establishments.
Commissioner Kristin Johnson voiced concerns that the regulatory system is lagging the industry's quick progression. LedgerX, once connected with FTX and now part of Miami International Holdings, Inc. (MIH), operates in an uncommon field by offering direct access to clients, swaying from known industry norms.
In addition, LedgerX has attracted attention for its attempts to settle cryptocurrency transactions directly for customers, straying from the traditional practice of involving middlemen. The firm has successfully secured multiple CFTC registrations, fortifying its operations with reinforced consumer protections such as asset separation.
Critically, Commissioner Johnson champions a reformatted regulatory framework that offers unswerving protection to retail customers, regardless of whether they trade via intermediaries or directly with non-intermediated DCOs like LedgerX.
Concurrent with this call for action, the public has been offered a 75-day window to comment on the proposal. This reflection and discussion time could shape the CFTC's response to the regulatory shortcomings Commissioner Johnson identified.
Thus, it falls to the CFTC to ensure that regulatory actions keep pace with the ever-changing derivatives market. This devotion is vital to guard retail consumers' interests and uphold equality and fairness in this rapidly morphing digital finance landscape.
Published At
11/4/2023 7:49:12 AM
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