Head of CFTC Finds FTX’s Idea on Intermediators a Significant Shift

• The leaders in the derivatives business voiced their opposition to the plan.
• Behnam argued that a “non-intermediated future” would be a “significant deal.”

The plan to eliminate intermediaries in U.S. crypto derivatives by FTX has shaken up established financial institutions, but the head of the Commodity Futures Trading Commission (CFTC) has suggested it might signify an “evolution” in the way markets function.

On Friday at Georgetown University’s Financial Markets Quality Conference, CFTC Chairman Rostin Behnam expressed his enthusiasm for the plan but said he couldn’t speculate on when or in which direction the agency could react.

Behnam stated:

“This is a unique intersection of the crypto space and traditional finance. I think this is potentially – and I emphasize the ‘potential’ – another phase in the evolution of market structure, innovation and disruption.”

Might Lead to Flash Crashes

FTX’s derivatives business in the United States has sought the authority to settle clients’ margin-backed derivatives contracts directly, bypassing the usual middlemen. At a roundtable discussion hosted by the CFTC earlier this year, leaders in the derivatives business voiced their opposition to the plan, citing concerns that it might lead to flash crashes as a result of the automated liquidation of consumers’ holdings.

Behnam argued that a transition to a “non-intermediated future” would be a “significant deal.” Behnam drew parallels between this and the transition from floor trading to electronic trading in the commodities market in the 1990s.

At the Security Traders Association market structure conference on Friday, FTX US Derivatives CEO Zach Dexter indicated that the application process is “going well” thus far.

Dexter said that the idea is “fixing all of that,” referring to FTX’s view that the current market for trading crypto futures is “a difficult system to deal with for retail investors.” In order to show the agency how the application works, his firm is “walking the agency through,” he added.

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