FTX CEO advocates for knowledge tests on all derivatives trading

Updated: 17 October 2022

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The CEO of the FTX cryptocurrency exchange, Sam Bankman-Fried, has said that he supports having knowledge tests and disclosures on derivatives trading platforms. This will ensure retail investors are protected. However, Bankman-Fried said that these conditions should not be specific to cryptocurrencies.

FTX CEO supports knowledge tests on derivatives trading

The FTX CEO shared his thoughts in response to an idea shared by a commissioner of the Commodity Futures Trading Commission (CFTC), Christy Goldsmith Romero. On October 15, Romero said that better consumer protection measures would be guaranteed if there is a “household retail investor” division for derivatives trading.

Romero has also added that the crypto industry was paving the way for more retail traders to venture into derivatives markets. The commissioner has also called upon the CFTC to separate retail investors from high-networth and professional investors.

One of the ways to achieve this is to have disclosures published in a manner that ordinary investors understand or could be used when assessing the rules surrounding leverage use.

Derivatives trading involves traders speculating on the future price of a financial asset such as stock, cryptocurrency, commodity, or fiat currency. Trading derivatives involves buying and selling derivatives contracts, with the process also involving leverage.

Bankman-Fried said that he was confident that requiring disclosures and knowledge tests for Future Commissions Merchants (FCMs) and Designated Contract Markets (DCMs) in retail trading “could make sense.”

DCMs are derivative exchanges that are regulated by the CFTC. These exchanges are used for trading products like options and futures that are only accessible through an FCM. FCMs accept or solicit buy and sell orders on futures and futures options contracts from traders.

However, the FTX CEO has also added that it did not make sense that all the knowledge tests and disclosures be limited to cryptocurrencies, adding that they needed to apply to all derivative products.

The remarks made by the FTX CEO come after FTX US, the US-based division of the FTX exchange, looked to launch a cryptocurrency derivatives trading platform. According to the exchange’s CEO, the exchange has already launched a knowledge test that could be supported for the platform.

CFTC makes efforts to regulate crypto

The CFTC has been enhancing its efforts to become the ideal regulatory body for the cryptocurrency market in the US. Calls for regulatory clarity in the US crypto space have intensified, and the Security and Exchange Commission (SEC) is currently taking the mantle.

On September 27, Caroline Pham, a commissioner of the CFTC, said that the regulator needed to create an office focusing on crypto retail investments to expand its efforts for consumer protection. The office would mimic the one created by the SEC.

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