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

Kristin N .Johnson, a commissioner at the Commodity Futures Trading Commission, said Thursday that the regulator has “boots on the ground” at LedgerX, a U.S.-based subsidiary of FTX, the multibillion-dollar cryptocurrency exchange that 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 made her remarks at a crypto regulation conference in London.

LedgerX was a "point of interaction" between the CFTC and FTX US. Before it was acquired by FTX last year, it applied to become a registered derivatives clearinghouse with the CFTC in 2017.

Johnson said that the CFTC had required LedgerX to maintain segregated funds separately, submit to monthly, quarterly and annual examinations, and demonstrate the veracity of assets held in accounts on behalf of customers with 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 or reinvested or in any way threatened, she said.

Her comments echoed those of CFTC Chairman Rostin Behnam, who told a futures conference earlier this week that he credited LedgerX’s escape from bankruptcy to his 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 with no legislation, CFTC always has a “number of options” to provide oversight to preserve market integrity.

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

She said the CFTC doesn't have the authority at the present time to force market participants to come under its regulatory purview, which would make them subject to surveillance, oversight and policing.

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

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