CFTC’s Behnam Calls FTX Idea a Potential ‘Evolution’ in Market Structure

FTX’s proposal to cut out the middlemen in U.S. crypto derivatives has shaken traditional financial firms, but the chairman of the Commodity Futures Trading Commission (CFTC) said the idea could mark an “evolution” in the way markets work.

CFTC Chair Rostin Behnam said he couldn’t comment on when the agency may respond to the proposal, nor which way it might lean, but he revealed how impressed he is with the idea on Friday at the Financial Markets Quality Conference at Georgetown University.

“This is a unique intersection of the crypto space and traditional finance,” Behnam said. “I think this is potentially – and I emphasize the ‘potential’ – another phase in the evolution of market structure, innovation and disruption.”

FTX’s U.S. derivatives operation applied for the ability to clear customers’ margin-backed derivatives contracts directly without traditional intermediaries. Earlier this year, the CFTC held a roundtable talk at which derivatives industry leaders balked at the proposal as dangerous, saying it could spark flash crashes from automatically liquidating customers’ positions without human intervention.

“Non-intermediated futures would be a significant deal; it’s a significant shift,” Behnam said. He went on to describe how crypto natives come into the long-established industry and are surprised by what they find.

“They come into the traditional market space and they’re just a bit puzzled,” he said. “They’re like, ‘Why do you do it this way? We have a way that’s more efficient, where we can have trading execution that’s quicker with better pricing, and we can have settlement and custody in a much better manner.’ That’s where I think we have to learn from each other collectively.”

Behnam equated it with the commodities industry’s 1990s shift from floor trading to the computerized system.

The application process seems to be “going well,” so far, said Zach Dexter, the CEO of FTX US Derivatives, at a separate event on Friday – the Security Traders Association market structure conference. FTX had seen the existing market as “a difficult system to deal with for retail investors” to trade crypto futures, and Dexter said the proposal is “fixing all of that.”

His company is now “walking the agency through” the application “in an incredible amount of detail,” he said.