Bitnomial clearing license puts CFTC’s vertical integration debate to rest.

The United States Commodity Futures Trading Commission (CFTC) granted a clearinghouse license to digital asset origination exchange Bitnomial on December 13. Bitnomil thus became a regulated vertically integrated market structure.

The CFTC was working on Bitnomial's April 2022 application, which was approved by a four-to-one vote after several delays. Vertical integration is a controversial practice among unregulated crypto companies. CFTC Chairman Rustin Behnam addressed concerns about vertical integration in a Dec. 18 statement on Bitnomial's registration:

“Directly integrated DCOs [derivatives clearing organizations] They are not new structures for the Commission, nor are they in any way designed for a specific asset class. […] Like other registered DCOs, Bitnomial currently uses a traditional intermediary clearing model that involves multiple clearing members active on the exchange, such as FCMs.

“Currently, the commission does not have any requirements to resolve conflicts related to the regulations,” he continued.

Commission member Christy Goldsmith Romero disagreed with Behnam and called Bitnomial's registration a precondition, saying:

“The CFTC needed to analyze the risks of vertically integrated market structures, particularly in digital assets, because the characteristics of those markets can exacerbate risk.”

“We need to learn from what we've done to change the traditional market structure considering the FTX application,” she added. Vertical integration was strongly advocated for the derivatives market by former FTX CEO Sam Bankman-Fried. FTX.US applied to clear excluded products without a license broker.

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Goldsmith Romero was the only dissenter from the decision to grant Bitnomial a DCO license, but not just because of the issues she raised with the CFTC. Also on December 18, the CFTC issued a staff advisory on clearing and risk, market surveillance and market participants in designated contract markets, DCOs and/or execution facilities and intermediaries such as FCMs and other market participants. their compliance obligations.

Among other things, the CFTC approves swaps and derivatives that require the clearing of members' funds, separate from the DCO's own funds, and held in a depository that confirms that the letter money belongs to the members, not the DCO. 1/3https://t.co/8xKOrDq0XJ

— dismal-jellyfish (@DismalJellyfish) December 19, 2023

Commissioner Christine Johnson issued a statement calling for regulation on vertical integration to create a “comprehensive approach” to conflicts of interest that arise from it. She discussed both whose app she supported and FTX. She pursued the theme further in a long separate exposition on decoys.

Bitnomial founder and CEO Luke Horston emphasized the importance of license negotiations in a statement released on December 13.

“Our improvements to the platform and its operations have been eagerly awaited to secure these additional licenses. […] Now that the licensing process is complete, we can shift our focus to expanding Bitnomial's product offering and customer base.”

Bitnomial launched digital asset margin trading in 2020.

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