LedgerX highlights the CFTC’s regulatory loophole in client asset regulations
The United States Commodity Futures Trading Commission (CFTC) has focused on how firms handle client assets.
A recent CFTC proposal seeks to reform regulations for futures commission merchants (FCMs) and derivative clearing organizations (DCOs). These companies are now required to invest client funds in highly liquid assets. However, the revised rules do not consider LedgerX's unique operating model.
LedgerX acts as a DCO, establishing direct relationships with clients and deviating from the traditional intermediary role of FCMs.
CFTC Commissioner Christine Johnson raised concerns, highlighting that the regulatory framework is behind the industry's rapid evolution. Formerly affiliated with FTX and now part of Miami International Holdings, LedgerX operates in a unique sector by deviating from established industry conventions and providing direct client access.
LedgerX has garnered attention for its efforts to settle cryptocurrency transactions directly for customers, breaking away from the traditional practice of involving intermediaries. The company has successfully obtained several CFTC registrations, which strengthen its operations with improved consumer protections, such as asset segregation.
Johnson advocates for a revised regulatory framework that provides uniform protection for retail customers, whether they trade through intermediaries or directly with non-intermediary DCOs such as LedgerX.
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This appeal coincides with a 75-day window for the public to comment on the proposal. This discussion period has the potential to guide the CFTC in addressing the regulatory deficiencies identified in Johnson.
It is the CFTC's responsibility to ensure that regulatory actions continue to adapt to the ever-changing derivatives market. This is important to protect the interests of retail customers and maintain a level and fair environment.
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