On December 13, the U.S. Commodity Futures Trading Commission (CFTC) awarded Bitnomial, a digital asset derivatives exchange, a clearing house license, adding to its existing derivatives exchange and brokerage licenses. This makes Bitnomial a regulated, vertically integrated market entity. The decision, resulting from a four-to-one vote, comes after considering Bitnomial's application submitted in April 2022. Vertical integration, although common in unregulated crypto companies, remains a topic of debate.
CFTC Chairman Rostin Behnam, addressing the approval on December 18, stated that a vertically integrated Derivatives Clearing Organization (DCO) like Bitnomial is not unique to the Commission. He emphasized that Bitnomial, similar to other registered DCOs, will use a traditional intermediary clearing model involving multiple active clearing members. Behnam clarified that the current regulations do not mandate resolving conflicts of interest related to affiliations.
However, not all CFTC members agreed with this decision. Committee member Christie Goldsmith Romero expressed dissent, highlighting the need for a careful examination of the risks associated with vertically integrated market structures, especially in digital assets. She referenced the application from FTX, which also proposed altering traditional market structures. Goldsmith Romero, the sole opposition in the voting, stressed the importance of considering the amplified risks in digital asset markets.
The CFTC's various divisions, including Clearing and Risk, Market Oversight, and Market Participants, released a report on December 18. This report focuses on the relationships between different market entities like designated contract markets, DCOs, swap execution facilities, and intermediaries such as Futures Commission Merchants (FCMs). The report reminds these entities of their compliance responsibilities. Additionally, Commissioner Christine Johnson called for the development of rules for vertical integration to address potential conflicts of interest, referencing both Bitnomial and FTX in her discussion.
Bitnomial's founder and CEO, Luke Hoersten, expressed the significance of obtaining the full spectrum of licenses, stating that the company can now focus on expanding its product range and customer base. Hoersten remarked that Bitnomial's platform and operational enhancements have been aligned with the goal of securing these licenses, and with the process now complete, the company is poised for growth.
