With FTX Bloodied, Rival in US Regulatory Fight Adds Another Knife

An old-guard rival of FTX from the derivatives markets sought to drive a stake through its heart as the crypto company struggled to save itself from financial disaster on Wednesday.

A subsidiary of Cboe Global Markets Inc. sent a letter on Wednesday to its customers – addressed as the “crypto community” – reminding them of its own “customer protection policies, the benefits of regulatory oversight and the value of including intermediaries in our marketplace.”

“Cboe Digital has strict policies in place to ensure our customer funds are segregated and safe,” said the note from Cboe Digital President John Palmer.

The comment about intermediaries goes to the heart of what FTX has applied to the Commodity Futures Trading Commission to be allowed to do. FTX US Derivatives is seeking approval to eliminate go-betweens by handling the clearing of crypto transactions directly for customers – an idea the industry has generally criticized as dangerous.

Palmer explained his timing in a statement to CoinDesk, saying, "Recent market events are a testament to the value of these tenets upon which we’ve built our platform."

Sam Bankman-Fried appeared at a CFTC roundtable earlier this year to tout his idea for using technology to do things a new way, which has drawn some tentative praise from CFTC Chairman Rostin Behnam as a potentially evolutionary innovation.

Bankman-Fried said his FTX US remains separate from the negotiations over the purchase of FTX’s non-U.S. assets, which ended Wednesday after Binance said it was walking away from the deal. The derivatives subsidiary is in that U.S. arm. But the situation is already casting a shadow over the CFTC application, and the status of the U.S. operations remains unclear. CFTC spokesperson Steven Adamske previously told CoinDesk that it’s awaiting any new information from FTX.

Cboe Global Markets Inc., which acquired ErisX earlier this year and entered the digital-assets space as Cboe Digital, has formally opposed FTX’s proposal in a letter to the agency that argued that something this important should be done in a new rule instead of an application process.

“Enabling access via intermediaries ensures that there are multiple points of risk and credit control, customer protection, separation of business function/duty, and management of conflicts of interest,” the company said in its letter this week.

UPDATE (Nov. 9, 2022, 22:03 UTC): Adds comment from Cboe Digital's John Palmer.