CFTC proposes to require crypto exchanges to segregate their own and client assets

The initiative is designed to prevent situations similar to the FTX collapse

14.12.2023 - 09:05

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2 min

What’s new? The US Commodity Futures Trading Commission (CFTC) has proposed a rule to strengthen investor protection when conducting transactions through derivatives clearing organizations (DCOs). Thus, DCOs registered with the commission, including cryptocurrency DCOs, would be required to segregate customer funds from their own. As a result of the vote, CFTC members decided to put the initiative up for public discussion. The rule, if adopted, is expected to prevent situations similar to the collapse of the FTX crypto exchange, whose founder is accused of embezzling billions of dollars in client assets.

The Block’s material

What else is known? Currently, the CFTC protects the funds of clients of trading platforms, but not clearing derivatives platforms. The initiative seeks to address this gap.

So, if a DCO faces a liquidity shortage, such as a crypto exchange receiving a large number of withdrawal requests, customer assets would be protected under the proposed rule. The rule would be enforced by requiring that customer funds be held in a separate account.

CFTC Chairman Rostin Behnam noted that over the past three years, many players have emerged in the crypto space “with new ideas about how markets function and what they view as the most efficient sort of execution models for their business.”

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Earlier, Behnam also recognized that there is competition between his agency and the Securities and Exchange Commission (SEC) for control over the cryptocurrency sector, which hinders the implementation of regulation. However, he said that most cryptocurrencies could fall under the definition of a commodity, which contradicts the previously voiced position of SEC Chairman Gary Gensler.

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