CFTC Nod to Bitnomial Clearinghouse License Sparks Vertical Integration Debate

The United States Commodity Futures Trading Commission (CFTC) marked a significant regulatory milestone by awarding a clearinghouse license to Bitnomial, a digital asset derivative exchange, on December 13. This decision not only expanded Bitnomial’s regulatory credentials, previously holding derivatives exchange and brokerage licenses, but also catalyzed a crucial debate within the CFTC on the practice of vertical integration in the digital asset sector.

Divergent Views Within CFTC

The CFTC’s decision came after several delays and a vote of four to one, reflecting varying opinions within the commission about the implications of vertical integration, particularly in the volatile sphere of digital assets. CFTC Chair Rostin Behnam reinforced that the commission is familiar with vertically integrated Derivatives Clearing Organizations (DCOs), stressing that such structures are not specific to any particular asset class. Behnam highlighted Bitnomial’s use of a traditional intermediated clearing model involving multiple clearing members.

However, Commissioner Christie Goldsmith Romero expressed reservations. She underscored the need to thoroughly analyze the risks associated with vertical integration in digital assets, citing the potential for amplified risks in these markets. Goldsmith Romero’s stance was influenced by the lessons learned from the CFTC’s consideration of FTX’s application, which had proposed alterations to traditional market structures.

Calls for a Rulemaking Framework on Vertical Integration

Commissioner Kristin Johnson has echoed the need for a comprehensive approach to address conflicts of interest arising from vertical integration. She advocates for a rulemaking process to develop a holistic strategy, considering both the Bitnomial case and previous discussions surrounding FTX.

Simultaneously, the CFTC Divisions of Clearing and Risk, Market Oversight, and Market Participants issued an advisory on affiliations between designated contract markets, DCOs, swap execution facilities, and intermediaries. This advisory serves as a reminder of compliance obligations in these complex market structures.

Bitnomial’s Response and Plans

After receiving the license, Bitnomial’s founder and CEO, Luke Hoersten, emphasized the significance of this achievement for the company’s growth. He noted that completing the licensing process would enable Bitnomial to broaden its product offerings and customer base. Bitnomial, which initiated digital asset margin trading in 2020, views this development as a crucial step in its evolution as a regulated entity in the digital asset market.

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