Regulatory Ambiguity Surrounds Former FTX Unit LedgerX's Customer Funds: CFTC Commissioner

The U.S. regulatory body overseeing derivatives has put forth a new proposal outlining how firms under its jurisdiction should handle client funds. However, a commissioner from the U.S. Commodity Futures Trading Commission (CFTC) highlighted that the proposal does not adequately address the specific case of LedgerX.

LedgerX, a crypto derivatives platform and former subsidiary of FTX, was acquired by Miami International Holdings, Inc. (MIH) after going through bankruptcy. While LedgerX falls under the regulation of the CFTC as a derivative clearing organization (DCO), it operates in a unique capacity. Unlike the conventional industry practice, LedgerX functions as a clearinghouse that does not have futures commission merchant (FCM) members acting as intermediaries between itself and its customers.

The proposal put forward on Friday outlines that regulated firms should only invest customer assets in a broader range of highly liquid investments. However, it fails to consider 

"The context of a non-intermediated clearing model where the DCO offers direct client access to its clearing services, without the FCM as an intermediary,"

 noted CFTC Commissioner Kristin Johnson.

Johnson emphasized the need for the Commission's regulations to adapt alongside the significant shifts occurring in the derivatives market structure. LedgerX has been a disruptor in the industry, notably with its recent attempt to directly settle margined crypto transactions for customers, bypassing intermediaries. The firm holds multiple registrations with the CFTC and has committed to various special consumer protections, such as segregating assets.

"The existing regulations do not adequately address the issues raised by the conditions outlined in the LedgerX order,"

 Johnson asserted. 

"The Commission should consider implementing regulations that bridge this gap and ensure consistent protection for retail customers, whether trading through intermediaries or non-intermediated DCOs."

The proposal, which is not yet open for a 75-day public comment period, was originally slated for introduction at a November 1 meeting. However, the agency opted to cancel the meeting and proceed with an internal vote on the matter.

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