Creative Proposal by US CFTC: Derivatives Clearing Houses Must Separate Customer and Proprietary Funds

Creative Proposal by US CFTC: Derivatives Clearing Houses Must Separate Customer and Proprietary Funds

Creative Proposal by US CFTC: Derivatives Clearing Houses Must Separate Customer and Proprietary Funds

According to The Block, the U.S. Commodity Futures Trading Commission (CFTC) has voted to propose a rule to enhance customer protection for investors trading through derivatives clearing organizations (DCOs).

The rule, known as “Protection of Cleared Swaps Customer Collateral Held by Derivatives Clearing Organizations,” will require DCOs that are registered and clearing trades to segregate customer funds, including funds from retail investors, from their own funds. The proposal will be open for public comment.

CFTC Commissioner Kristin Johnson, who voted in favor, stated that the bankruptcy of FTX was a significant motivation for this proposal, as the FTX incident “highlighted the extent of losses customers may suffer in the absence of rules prohibiting the commingling of customer funds or member property.”

CFTC Chairman Rostin Behnam also voted in favor, stating that while the CFTC has protections in place for funds belonging to futures brokerage customers, there are currently no protections for funds belonging to DCO clearing members. He stated, “We need to do more to protect those funds.”

Additionally, the CFTC voted on Wednesday to grant a DCO license to the cryptocurrency derivatives exchange Bitnomial, allowing the company to conduct clearing operations for futures and options trading. Bitnomial stated in a press release that it is “the first and only cryptocurrency native exchange with full U.S. derivatives exchange, clearinghouse, and broker licenses.”