Rebuttal CME CEO SBF defends FTX’s new ‘liquidation model’ in Congress

FTX proposed to the CFTC in March to replace traditional brokers (FCMs) with automatic clearing. In response to this proposal, the big names in the commodity futures industry gathered in Congress yesterday to debate. What did they all say?

The U.S. House of Representatives Agriculture Committee held a hearing on May 12, “The Changing Role of Markets: Trends in Liquidation Models and FTX’s Proposal,” inviting top leaders of the derivatives industry to gather to debate the CFTC proposal that FTX proposed in March. Including the CEO of CME and the CEO of Intercontinental Exchange (ICE) were present to express their opinions.

According to the announcement on the FTX policy website, FTX hopes to require customers to deposit collateral in the account, and the system will calculate the margin position on a rolling basis in 30 seconds. If the margin ratio drops too low, FTX will start liquidating user positions within a few seconds.

In response to the proposal, several members of Congress overseeing the CFTC expressed their distrust of the crypto industry during the hearing, even mentioning the recent chaos caused by UST (TerraUSD).

House Agriculture Committee Chairman David Scott said the FTX proposal “could be a serious threat [to the financial system].”

CME chief: catastrophe for US economy and investors

Terry Duffy, chief executive of CME, the world’s largest derivative financial products trading platform, believes that if the proposal passes, it will be a disaster for financial markets.

“The risk of using this liquidation model is quite high, the consequences of these products would be a disaster, and the risk is not limited to crypto commodities, because once the proposal is passed, the model can be used for other commodities.”

Terry Duffy’s main concern is that once the proposal passes, the liquidation model could potentially be applied to other commodities, increasing systemic risk.

Also agreeing with Terry Duffy were Christopher Edmonds, chief executive of Intercontinental Exchange (ICE), and Walt Lukken, former acting chairman of the CFTC.

Their concerns are not groundless.

If this model is only used on FTX and limited to crypto commodities, the risk is manageable. And once it is extended to other commodities and other trading platforms, the speed and volume of the counterparty’s clearing will need to be considered.

SBF: Proposal will bring innovation, bring liquidity back to the US

FTX founder and CEO Sam Bankman-Fried explained that FTX’s proposal reduces systemic risk by requiring traders to provide collateral up front. From the perspective of risk management, this clearing method is more conservative than the traditional method, and blockchain technology can clear more efficiently.

“We believe (this proposal) will bring competition and innovation, bring liquidity to the U.S. market, and provide more choices for U.S. users. Our derivatives clearing model at FTX.US is more efficient than anywhere else in the world. Conservative, well reduced systemic risk and enhanced protection mechanisms.”

In response to the concerns of the CEOs of CME and ICE, SBF reiterated that it has no plans to launch contracts for “non-digital assets” for the time being.

“We have no plans to use this liquidation model to issue contracts other than digital assets anytime soon. I’m not lying, I really mean it.”

In addition, SBF also accepts that there may be additional restrictions, but he does not agree to limit the FTX model to only trading digital asset contracts forever.

It is conceivable that if the proposal is passed, although this clearing method will only be used for encrypted assets in a short period of time, in the future, if this clearing method is stable, it will also be used for other commodities, which will also bring a lot to the U.S. futures market. To compete, all the trading volume of commodity futures is currently concentrated on CME and ICE.

On the other hand, 95% of current crypto asset trading liquidity is outside the United States. If this proposal is passed, it is equivalent to creating a year-round trading environment in the United States, which is a very good strategic consideration for the United States.

CoinFund co-founder Christopher Perkins spoke out in solidarity with the SBF, arguing that the FTX proposal, if passed, would empower entrepreneurs to create cryptocurrency businesses within the U.S., as most innovation now occurs outside the U.S.


Both sides have their own insistence and reasons.

Those who oppose the FTX proposal believe that technical problems need to be solved, and if there is a problem, it will affect the market operation; the positive party believes that the FTX proposal has brought innovation, and from the perspective of liquidation risk alone, the FTX proposal is more conservative. More importantly, this encourages innovation and can bring cryptocurrency trading volume back to the United States.

As Rep. Sean Patrick told SBF: “You gave cool ideas, and a lot of people were excited about your ideas. But they [derivatives people] hated your ideas, which should be understandable. Well, after all the idea has an impact on their business. Let’s face it, it’s a mess right now.”

In general, FTX’s proposal may create a new pattern in the crypto industry and even the derivatives industry. At present, the CFTC has not yet passed the proposal, but it will hold a roundtable meeting on the 25th of this month, inviting industry professionals, scholars, and public welfare groups to participate.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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