FTX CEO Sam Bankman-Fried did a lot of talking at the United States Commodity Futures Trading Commission (CFTC) staff roundtable on non-intermediation Wednesday. He fielded questions and issues from 31 industry professionals about the FTX.US application to offer clearing of margined products, including crypto-based products, without a futures commission merchant (FCM) intermediary.
Many participants felt the need to mention their devotion to innovation and declared that they do not see the proposed new technology as an “us versus them” situation. Joe Cisewski of Pantera Capital said that just six or eight clearing firms dominate the U.S. market at present, so new competition would not be out of place. Like many others present, he saw the need for more regulatory framework for this new trading model.
“We don’t know what a crypto margin is,” said Hilary Allen, professor of law at American University. Allison Lurton of the Futures Industry Association (FIA) emphasized that FCM regulations are prescriptive and not principles-based because of the merchants’ “core position” in the system, and many rules and regulations would have to be revised for the proposed non-intermediated trading system.
Christine Parker of Coinbase said, “We don’t really have a good view of what a retail trader in the crypto space […] would design in a market.” Parker, commenting on the company’s experience outside the U.S., said crypto trading does not follow the patterns of traditional commodities. She was one of several people who considered trading options abroad superior to those in the U.S.
Several people also pointed out the ways in which the current system intentionally differs from the automated solution FTX is proposing. The framework for 24-hour clearing already exists, Lurton and others pointed out, but there are reasons not to use it. The proposed trading algorithm would have to respond to unexpected situations, Allen said, noting:
“That’s not what algorithms do, […] that’s what regulators are for.”
Todd Phillips of the Center for American Progress suggested that the role of the CFTC is to make sure investment products are appropriate for consumers. Possible round-the-clock clearing “isn’t something we want our retail investors getting into,” he said. Bankman-Fried took umbrage at this suggestion, calling it condescending and saying that “a lot of people know more than the people in this room” about margined trading.
“I was expecting something far more contentious,” moderator Robert Steigerwald of the Federal Reserve Bank of Chicago said later in the six-and-a-half-hour session.
On November 28, 2018, Christopher Giancarlo, the Chairman of the Commodity Futures Trading Commission (CFTC), hosted a roundtable discussion in Washington D.C with a room full of prominent representatives of the futures industry. The topic of discussion was the review of the current Commodities Exchange Act, which included a review of the Commission’s core principles.
The event concluded with a constructive debate between CFTC chief Chris Giancarlo and CFTC Commissioner Rostin Behnam, who are both passionate about modernizing the rules which regulate the futures industry.
The majority of the debate revolved around the differences of opinion between both men, with the Commissioner arguing against Deloitte’s Robert Bankman-Fried, who was one of the prominent participants in the room. Bankman-Fried raised numerous suggestions for modernizing the Commodities Exchange Act, including lengthening the block times from 10 minutes to 15 minutes and reducing the minimum spread requirement from three ticks to two ticks.
The debate was intense but productive, and both sides seemed to come away with a lot of respect and admiration for each other. Bankman-Fried appeared to be quite successful in his attempts to persuade the Commission to consider various elements of the updated rules.
As the roundtable drew to a close, it was evident that the members of the CFTC are in agreement that the standards and rules of the futures market need updating. Christopher Giancarlo stated, “The Commission’s review clearly demonstrates that it is possible to enact rules consistent with long-standing principles that would update and modernize the current Commodities Exchange Act for the benefit of market participants and the public at large.”
It was apparent from the discussion that Robert Bankman-Fried successfully managed to face down the roomful of industry insiders and gain the respect of those in attendance. The roundtable proved to be a productive and important event that will shape future regulation of the futures industry.
