CFTC Has ‘Boots on the Ground’ at FTX Subsidiary LedgerX

Commodity Futures Trading Commission (CFTC) Commissioner Kristin N. Johnson said that the regulator had “boots on the ground” at LedgerX, a U.S.-based subsidiary of FTX, the multi-billion dollar cryptocurrency exchange which collapsed last week.

The regulator, Johnson said, was “monitoring and overseeing on a daily, if not hourly basis, verifying what we believe to be the case, which is [that] every dollar of customer assets held at LedgerX continues to be available.”

Johnson was speaking at the Institutional Digital Assets and Crypto Regulation Symposium organized by City & Financial Global in London on Thursday.

LedgerX was a point of interaction between the CFTC and FTX US. Prior to FTX’s acquisition of the company, it applied to become a registered derivatives clearing organization with the CFTC in 2017.

Johnson said that the CFTC had required LedgerX to maintain member properties separately, submit to monthly, quarterly and annual examinations, as well as demonstrate the veracity of assets held in accounts on behalf of customers through proof of balance sheets and verified bank statements.

It also required reserves to be held by FTX, including a liquidity reserve for one year and for operating capital not to be touched, pledged, hypothecated or reinvested or in any way threatened, she said.

Her comments echoed CFTC Chair Rostin Behnam, who told a futures conference earlier this week that he credited LedgerX’s escape from bankruptcy to the agency’s oversight.

In FTX’s bankruptcy filing on Friday, LedgerX was one of the companies excluded from the filing, Johnson stressed (although the filing did include FTX US Derivatives, alongside several other companies that aren’t even tied to FTX).

She said that even if there wasn’t legislation in place, there would always be a “number of options” for the CFTC to integrate regulation that preserves market integrity.

Johnson said that the CFTC needs direct authority from Congress to engage market participants and require them to come into the regulatory framework of our markets.

Currently, she said the CFTC does not have the authority to force market participants to come into their regulatory space, making them subject to surveillance, oversight and policing.

She characterized the relationship between regulators in the United States as like “coming to Thanksgiving dinner.”

“There are some folks you might not necessarily seat side beside,” she said.