Regulators Are Powerless to Prevent Another FTX, Says CFTC Chairman

The Commodities Futures Trading Commission is in no better position now to prevent an FTX-level collapse than it was a year ago, Rostin Behnam, CFTC chair, said at a Georgetown University event this morning.

“Nothing has changed, and we could be in a position where another FTX-type event happens,” Behnam said.

He was on campus to speak at the Georgetown University Financial Markets Quality Conference. Behnam, an alum of the D.C. university, has attended the conference before alongside Sens. Cynthia Lummis (R-WY), Kirsten Gillibrand (D-NY) and Securities and Exchange Commission Chair Gary Gensler. The CFTC chair said the unchanged regulatory landscape leaves the market vulnerable to similar collapses.

During his Wednesday morning appearance he stressed that despite the CFTC’s oversight of derivatives, its limited power in the spot markets for cryptocurrencies like Bitcoin and Ethereum means it can only act against fraud or manipulation once it’s been reported, not preemptively regulate or monitor exchanges.

Behnam was last year called to testify before Congress about FTX’s collapse. Leading up to the crypto exchange filing for Chapter 11 bankruptcy protection in November 2022, it had been in talks with the CFTC.

“We had an interesting regulatory relationship. FTX had a regulated clearing house with the CFTC and they were trying to modify the application,” he said. “In the end, we never approved their application—but there was a lot of discussion between the agency and FTX.”

That regulated clearing house was LedgerX, a derivatives exchange that FTX founder Sam Bankman-Fried said was a top priority. Bankman-Fried has since been convicted of multiple fraud charges in connection with the collapse of his exchange and awaits sentencing.

He told Decrypt last summer during a podcast interview that U.S. crypto derivatives were what he was paying the most attention to. FTX acquired the CFTC-licensed LegerX in 2021 for an undisclosed amount and promptly renamed it FTX US Derivatives.

It was later revealed during FTX’s bankruptcy proceedings that Bankman-Fried paid almost $300 million to acquire the company. That’s six times the $50 million price that private equity firm M7 Holdings paid to acquire it in May.

During today’s Georgetown event, Behnam also talked about being disappointed to see the Digital Commodities Consumer Protection Act of 2022 die on the vine last year because it would have granted the agency power to regulate cash markets through registration and other basic tools already granted to the SEC.

“I certainly know that there were some issues and opposition to the bills—on both the Financial Services and the Agriculture Committee side,” he said. “The bill that they passed—relevant to the CFTC—does in fact accomplish the goals that I’ve been advocating and requesting for a number of years now.”

Edited by Guillermo Jimenez