FTX wanted to allow investors to borrow to trade derivatives: CFTC official

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Sam Bankman-Fried, CEO of cryptocurrency exchange FTX, at the Bitcoin 2021 conference in Miami, Florida on June 5, 2021.

Eva Marie Uzcategui | Bloomberg | Getty Images

Sam Bankman-Fried, co-founder of bankrupt crypto firm FTX, spent nearly a year trying to convince regulators to let him introduce a derivative product that would allow retail investors to trade with cash. borrowed, according to Rostin Behnam, president of Commodity Futures. Commercial committee.

In an interview with CNBC’s “Squawk Box” on Wednesday, Behnam said Bankman-Fried lobbied the CFTC to change the rules so that FTX could allow users to trade derivatives using margin rather than paying outright. ‘advance. He also wanted to offer the contracts directly to users, without having to go through a forward agent.

“It would have been a no-intermediate, margined model,” said Behnam, who described the proposal as “a very sensitive issue from a risk perspective.”

Prior to filing for bankruptcy last week, FTX had a derivatives platform registered with the CFTC called FTX US Derivatives. The platform was a rebranding of LedgerXa company that FTX acquired in 2021.

FTX US Derivatives is one of the few FTX-related properties that was not part of its bankruptcy proceedings and remains in operation today. However, it appears to have started using the LedgerX brand again. If you go to the FTX US Derivatives website, it redirects you to ledgerx.com. And Zach Dexter, who was CEO of FTX US Derivatives, said on his LinkedIn Profile that he is CEO of LedgerX. The platform allows traders to purchase options, swaps and futures on bitcoins and ethereal.

Beginning in December 2021, Bankman-Fried and his management team made frequent visits to the CFTC to advocate for an amendment to its existing license, Behnam said.

When asked what Behnam thought of Bankman-Fried during his meeting with him for nearly a year, the chairman said the former FTX chief “knows the markets, at least he tries to suggest that” and he “really aggressively wanted to have this amendment passed.”

Bankman-Fried supporters appealed directly to the CFTC to support his plan, Behnam said. They included Loyalty investments, Fortress Investment Groupand even the universities from all over the country.

FTX, which was valued at $32 billion by private investors earlier this year, dramatically spiral in the past week, as liquidity issues were reported, customers withdrew billions of dollars a day from their accounts. However, FTX did not have the capital to honor these demands as it had used customer deposits for various purposes, including trade at Bankman Fried’s hedge fund, Alameda Research. Bankman-Fried also revealed on Twitter on Wednesday that FTX has built approximately $13 billion in leverage.

Behnam said staff at his agency were still reviewing FTX’s amended license application when FTX and about 130 other affiliates, including Alameda and FTX’s U.S. subsidiary, collectively filed for bankruptcy protection. .

Since, LedgerX would have withdrawn its application for trading leveraged derivatives.

Prior to the implosion, Bankman-Fried had tried to play the role of industry savior as the crypto market sank and lenders and hedge funds went bankrupt. In May, he also bought a 7.6% stake in the trading app Robin Hood, which at the time had lost more than three-quarters of its value since its IPO last year. In April, FTX purchased a stake in the IEX stock exchange.

“If you think about it, in retrospect, with its acquisition of Robinhood and his relationship with IEX – it goes beyond crypto what FTX was trying to do,” Behnam said.

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