US CFTC Grants Clearinghouse License to Bitnomial; Calls for Clearer Vertical Integration Regulations
Summary:
The US Commodity Futures Trading Commission (CFTC) has granted digital asset derivative exchange Bitnomial a clearinghouse license, making it a regulated, vertically integrated market entity. The approval followed several delays and discussions around the controversial practice of vertical integration in unregulated crypto firms. Bitnomial now plans to expand its product range and customer base. The action prompted calls for clearer regulations on vertical integration to manage potential conflicts of interest.
The US Commodity Futures Trading Commission (CFTC) bestowed digital asset derivative market, Bitnomial, with a clearinghouse license on December 13. Bitnomial, which previously held derivatives exchange and brokerage (futures commission merchant — FCM) licenses, is now recognized as a regulated, vertically integrated market entity. The approval for Bitnomial's application, submitted in April 2022, came with a 4-1 vote following several postponements.
Although the concept of vertical integration is a contentious issue amongst unregulated cryptocurrency institutions, CFTC chair Rostin Behnam defended the practice on December 18 in a statement on Bitnomial's endorsement. He stated that vertically integrated DCOs (derivatives clearing organizations) are not uncommon structures for the commission, nor are they specifically designed for a certain asset category. Bitnomial employs a conventional intermediated clearing model involving numerous clearing members presently active on the exchange as FCMs, akin to other registered DCOs.
Still, Behnam recognizes that the commission currently lacks a policy addressing affiliate conflicts. Commission member Christie Goldsmith Romero expressed her disagreement with Behnam's stance, labeling Bitnomial's registration as precedent-making. She suggested that the CFTC should evaluate the potential hazards of vertically integrated market structures, especially in the realm of digital assets, where such features could escalate risk.
Goldsmith Romero, who was the single objector to Bitnomial receiving a DCO license, wasn't alone in her scrutiny. On the same date, CFTC divisions of Clearing and Risk, Market Oversight, and Market Participants issued an advisory regarding affiliations between contract markets, DCOs, and intermediaries. The advisory reminded these entities of their responsibility to comply with regulations.
On a related note, the CFTC approved swap and derivatives rules necessitating clearing member funds to be separate from the DCO's personal funds. A written acknowledgment from the depository holding the funds is required to assert that the funds belong to clearing members, not the DCO.
Kristin Johnson, a CFTC commissioner, has requested rulemaking on vertical integration to construct a comprehensive method for handling conflicts of interest that arise from it. In addition to Bitnomial, Johnson also cites FTX in her discussion.
Luke Hoersten, Bitnomial's founder and CEO, accentuated the significance of the holistic licensing procedure in a statement published on December 13. Hoersten further implied that Bitnomial can now concentrate on enlarging its product range and customer portfolio now that licensing is complete. Bitnomial first launched digital asset margin trading in 2020.
Published At
12/19/2023 10:36:44 PM
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