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House Ag Committee Considers FTX Proposal and its Impact on Clearing

The U.S. House Committee on Agriculture (i) considered a proposal by FTX - a registered derivatives clearing organization - to expand its services and (ii) examined trends in new clearinghouse models.

FTX currently intermediates futures and options on futures contracts for retail investors on a non-intermediated, but fully collateralized, basis. Under the proposal, FTX would continue to clear products without intermediation, and would do so for trades that were not fully collateralized. As previously covered, the CFTC requested comment on (i) the specifics of the FTC proposal to expand its services and (ii) any policy concerns that might emerge from the use of a non-FCM model in a manner as proposed by FTX. The comment period closed on May 11, 2022. (See list of industry comments.)

At the hearing, House Agriculture Committee Chair David Scott expressed concern about the FTX-proposed clearing model, noting that while it would only apply to a select few cryptocurrency contracts, the CFTC must consider the potential for this model to expand to other derivatives markets and to be adopted by clearinghouses in some form. Further, Rep. Scott said he was "gravely concerned" that the proposal had the potential to "upset international agreements that the CFTC and [the House Agriculture] Committee have worked so hard to preserve which have deemed our current clearing structure and regulations equivalent to EU and UK rules, affording US derivatives clearing organizations the ability to provide clearing services in their markets."

The Committee heard testimony from several witnesses, including (i) Terrance A. Duffy, CEO and Chairman of CME Group, (ii) Sam Bankman-Fried, CEO and Co-Founder of FTX US Derivatives, (iii) Walt Lukken, President and CEO of FIA, (iv) Christopher Edmonds, Chief Development Officer of Intercontinental Exchange and (v) Christopher Perkins, President of CoinFund Management, LLC.

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