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Bitnomial clearing license sets off CFTC vertical integration debate

Press Releases Crypto News Cointelegraph Bitnomial clearing license sets off CFTC vertical integration debate

The United States Commodity Futures Trading Commission (CFTC) granted digital asset derivative exchange Bitnomial a clearinghouse license on Dec. 13. Bitnomial already had derivatives exchange and brokerage (futures commission merchant, or FCM) licenses. It has thus become a regulated, vertically integrated market structure.

The CFTC was acting on an application filed by Bitnomial in April 2022, which was approved by a vote of four to one after several delays. Vertical integration is a controversial practice in unregulated crypto firms. CFTC Chair Rostin Behnam addressed concerns about vertical integration on Dec. 18 in his statement on Bitnomial’s registration:

“Vertically integrated DCOs [derivatives clearing organizations] are not novel structures for the Commission, nor are they in any way designed specifically for a certain asset class. […] Like other registered DCOs, Bitnomial uses a traditional intermediated clearing model that will involve multiple clearing members currently active on the Exchange as FCMs.”

“Currently, the Commission does not have a requirement for addressing affiliate conflicts in its regulations,” he continued.

Commission member Christie Goldsmith Romero disagreed with Behnam and called the Bitnomial registration a precedent, saying:

“The CFTC needed to analyze the risks of vertically integrated market structures, particularly in digital assets, as features of those markets could amplify risk.”

“We should learn the lesson from our consideration of FTX’s application that also sought to change the traditional market structure,” she added. Vertical integration was strongly advocated for in the derivatives market by former FTX CEO Sam Bankman-Fried. FTX US applied to clear margined products without a licensed broker.

Goldsmith Rom

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Author: Derek Andersen

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