LedgerX executives denounced the CFTC’s actions as biased last weekend. A comment from the CEO of LedgerX on the firm’s blog would have provoked the Commission’s attitude.
A regulatory drama in the cryptocurrency derivatives market reached a climax on Twitter during the last weekend in September 2019.
Executives of the US firm dedicated to cryptocurrency derivatives, LedgerX, say that its main regulator, the Commodity Futures Trading Commission (CFTC), has acted unfairly by favoring its main rival Bakkt.
Paul Chou, CEO of the firm, posted on Twitter on September 27th a message alleging that the CFTC breached promises made to the firm and conspired against it.
The Twitter drama occurred after the plans for launching the LedgerX futures platform in August were postponed. At that time, LedgerX had the impression that the CFTC had given the company the necessary authorizations to launch Bitcoin physical futures. However, after announcing its Omni platform, originally marketed on social networks as a platform for options and futures trading, the firm was told by a CFTC spokesperson that it had no green light to launch Bitcoin futures with physical settlement.
Two letters that were sent by LedgerX to the CFTC hold that the bias of the previous president of the Commission, Christopher Giancarlo, is behind the firm’s delays.
One of the letters notes that this request had been received more than 180 days before by the Commission, who did not approve or deny it. The firm has strong reasons to believe that this delay, which clearly violates the Commodity Trade Law, is linked to a reaction toward a blog post signed by Chou.
It is not entirely clear why the CTFC has favored the rivals of LedgerX, although sources close to the events say that LedgerX executives have the impression that the CFTC showed favoritism by working more closely with Bakkt and ErisX. Other sources have said that it is common among regulators to favor existing market participants over new entrants.
However, CFTC spokesman Michael Short claimed that the agency treats all registered entities equally. He argued that repeated changes in LedgerX’s licensing strategy prevented its approval.
Through an e-mail, Short avoided being more specific regarding the situation. For his part, Chou described such brief response as nothing but fake news.
The approval of new futures contracts can be reached in several ways. Bakkt launched its platform regulated by the state of New York, while ErisX and LedgerX decided to launch those markets through DCO and DCM licenses.
When the LedgerX futures market was being announced, the CFTC said that the firm was only licensed to operate in the swap market. As part of the approval process, LedgerX explained that it was asked to undergo an SOC1 audit.
The firm also states that the agency revoked its DCO order after their CEO had posted an article on the firm’s blog. The COO of LedgerX, Juthica Chou, Paul Chou’s wife, said on September 28th that the agency had intervened improperly in the audit process.
The CFTC denied those allegations of Juthica Chou, while Paul Chou was fired from the CFTC Technology Advisory Committee. Short said that the dismissal was conducted by a unanimous decision of the Commission.
By Willmen Blanco