Regulation
FIA Urges CFTC Action As CME Gains Approval for Futures Commission Role
The recent approval granted to CME Group for establishing its own Futures Commission Merchant (FCM) has stirred concerns within the industry. The Financial Industry Association (FIA) has voiced apprehensions regarding potential systemic risks, urging the Commodity Futures Trading Commission (CFTC) to address conflicts that may arise from CME’s expanded market role.
FIA’s Concerns on Market Consolidation Risks
The FIA raised the issue of heightened risks due to market consolidation within CME’s operations. According to FIA President Walt Lukken, the approval represents a trend in the financial industry where single organizations manage multiple functions, including trading, clearing, and intermediation.
Lukken emphasized that “the approval of CME’s FCM application is the latest and most notable instance of a concerning market structure.” The FIA argues that this multi-functionality in a single entity could lead to conflicts of interest, particularly in financial markets already sensitive to systemic risk.
Lukken also pointed out that three years ago, the FIA expressed similar concerns when FTX applied for CFTC approval with a vertically integrated business model. The FIA warned then of possible conflicts of interest from combining multiple market functions under one roof, a concern that remains relevant today as CME expands its operations.
CME’s Expansion and Strategic Adaptation
CME Group, whose activities are primarily associated with the derivatives market, received the approval of the National Futures Association (NFA) to create an FCM, thus strengthening its presence in the global financial environment.
CME Group’s CEO, Terry Duffy, noted that the FCM model helps the company to be more sensitive to the clients’ needs, as the market changes. The company is involved in futures and options, as well as over-the-counter transactions, and offers products across several asset types, including equities, foreign exchange, and commodities.
The FCM approval is in sync with CME’s strategy of offering a full spectrum of products and services to expand its market base and cater to the needs of both the retail as well as institutional clients.
The group’s most recent financial results are encouraging as the third quarter of 2024 set new performance standards in terms of trading volumes, bolstered by rising interest rate transactions and institutional activity. Duffy further elaborated on CME’s plans to enhance its service delivery, stressing on how servicing clients in a fully integrated FCM model is more strategic.
FIA Calls for Immediate CFTC Rulemaking
To this, the FIA has proposed to the Commodity Futures Trading Commission to put in place rules to deal with conflicts of interest in vertically integrated financial companies such as CME. Lukken also highlighted that the CFTC’s current guidelines do not precisely define legal frameworks for such business models.
“The CFTC has not yet suggested clear guidelines that would help prevent conflicts of interest among the CFTC-regulated participants.”
The FIA goes further than CME in its recommendations to the CFTC, the association urging the regulator to enforce policies that apply to all participants who seek to hold multiple roles. The organization has recommended that more stringent measures be taken to prevent any conflicts of interest that may emerge in the process of providing the service, in order to protect the integrity of the market.
Lukken stated that the recent approval of CME’s FCM puts pressure on the Commodity Futures Trading Commission to act and regulate the market in a balanced manner concerning all market participants.
Furthermore, as CME continues to implement its FCM model, the company has posted a solid financial performance and investors’ trust. According to the group, its business posted remarkable increase in the third quarter of 2024 due to rising averages of trading volume per day and active engagement of retail and institutional investors.
Revenue, as a result, rose by 18% year-on-year, driven by a 36% jump in interest rate trading volumes. The company’s stock has performed well, reflecting a positive outlook in the market despite the potential challenges posed by its expanded role.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
Regulation
US SEC Publishes Grayscale’s Digital Large Fund Cap Filing In Federal Register
The US Securities and Exchange Commission (SEC) has published Grayscale’s 19b-4 filing for its Digital Large Cap Fund in the Federal Register. This significant development has officially kickstarted the US SEC’s review process for the asset manager’s application to convert this fund into an ETF.
US SEC Publishes Grayscale’s Filing In Federal Register
Grayscale announced in a press release that the US SEC has published the NYSE’s 19b-4 filing to list and trade its Digital Large Cap Fund as an Exchange-Traded Product (ETP) in the Federal Register.
This formally initiates the review process for the Commission to review and possibly approve the application. As noted in the press release, this review process can take up to 240 days before the regulator must decide whether to approve or deny the application.
If the US SEC approves the NYSE’s proposed rule change, it would be the first time a national securities exchange would list and trade shares of multi-crypto asset ETPs. The SEC’s acknowledgment of the 19b-4 filing just comes around two weeks after the asset manager filed to convert the Digital Large Cap Fund into an ETF.
According to Grayscale, as of November 1, the GDLC currently holds over $530 million in assets under management (AuM) for the fund. The fund holds Bitcoin, Ethereum, Solana, XRP, and Avalance, which are weighted according to their respective market caps.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
Regulation
Former SEC Official Criticizes Wells Notice Against Immutable
Former SEC official Marc Fagel has voiced concerns over the Securities and Exchange Commission’s recent issuance of a Wells Notice to Immutable, an Ethereum-based Web3 gaming company. Immutable claims that the Wells Notice arrived with limited prior communication or explanation, marking a sharp departure from what is typically a more extensive investigative process.
Fagel commented that it is unusual for the SEC to issue such notices without first conducting a thorough investigation, suggesting that this approach could be “risky.”
Former SEC Official Questions Rapid Wells Notice Issued to Immutable
Immutable announced it had received a sudden Wells Notice from the U.S. Securities and Exchange Commission (SEC). The notice, which serves as a formal alert for potential enforcement action, cited alleged securities law violations related to private IMX token sales in 2021. However, the specifics of these alleged violations were minimally detailed in the notice, sparking questions about the SEC’s procedural approach.
Former SEC Official Marc Fagel commented on the surprise issuance, noting that it’s uncommon for the agency to send such a notice without preliminary investigation. In typical cases, companies expect several months of interviews or exchanges before receiving a Wells Notice, and Fagel stated that deviating from this standard practice could be seen as “risky.”
In a heated discussion on the X platform, the former SEC official added,
“BTW, it’s hard to believe the SEC would Wells without conducting sufficient investigation to support the claims; way too risky outside the TRO scenario. That said, I’ve heard plenty of anecdotes about the crypto unit dropping a Wells out of the blue, which is kinda scuzzy.”
Wells Notice Reflects SEC’s “Regulation by Enforcement” Strategy
The crypto sector has witnessed similar actions, with companies such as Coinbase, Consensys, and Crypto.com also receiving Wells Notices. The sudden notice aligns with a broader trend criticized as “regulation by enforcement.” Here, the agency proceeds with legal action rather than establishing clear compliance guidelines.
Immutable pointed out that its interaction with the SEC was exceptionally brief before the Wells Notice was issued. More so, they noted that it lacked meaningful explanation, containing fewer than 20 words specifying the alleged securities violations.
The Securities and Exchange Commission approach has caused considerable frustration within the crypto community. Fagel highlighted that the SEC’s surprising strategy of issuing Wells Notices abruptly in the crypto sector has become increasingly common.
ConsenSys Responds to SEC Claims on MetaMask
In parallel, blockchain company ConsenSys recently filed a response to the SEC’s claims regarding alleged securities violations by MetaMask. ConsenSys disputed the allegations, stating that MetaMask’s product embodies essential blockchain principles. It allows users to interact in a decentralized way. The company also reinforced its commitment to defending its product and technology within the legal framework.
Notably, under SEC Chair Gary Gensler, crypto firms have reported heightened compliance burdens. Regulatory enforcement actions have cost the industry an estimated $400 million, according to the Blockchain Association. These reports aligns with what the former SEC official, Marc Fagel, terms as “scuzzy”.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
Regulation
Why A 25Bps Cut Is “Pretty Straightforward”
Former Cleveland Fed President Loretta Mester recently discussed a potential Fed rate cut at the November FOMC meeting. She said that a 25 basis point (bps) cut seems pretty straightforward at this point and explained why.
A 25bps Fed Rate Cut Is “Pretty Straightforward”
Loretta Mester mentioned during a CNBC interview that a 25 basis point Fed rate cut seems pretty straightforward at this point, considering that inflation has come down quite a bit from its peak even though it is not yet at the US Federal Reserve’s 2% target.
She alluded to all the recent inflation data since the September FOMC meeting, which she claimed doesn’t change the base narrative that inflation has come down and the growing confidence that it will continue to trend downward.
The former Fed president also noted that the unemployment rate is moderating, and the job data shows that the labor market is healthy. As such, she remarked that the Fed should be trying to implement monetary easing policies as the US economy normalizes.
Mester’s comments come amid the release of the US job data, which showed that the non-farm payroll rose by 12,000 in October, lower than the expected 110,000. Meanwhile, the unemployment rate remained unchanged at 4.1%.
Commenting on this, the former Cleveland Fed president said that the lower-than-expected job figures were likely due to the hurricanes in the United States last month. She added that she is glad the unemployment rate remained unchanged as it showed that the US economy isn’t as weak as the non-farm payroll suggested.
Like Mester, traders seem confident that a 25bps Fed rate cut should be the Fed’s next step. FedWatch tool data shows there is a 99.8% probability of the Federal Reserve cutting interest rates by 25 bps at its November FOMC meeting.
The Significance Of The Fed’s Decision
A 25bps Fed rate cut is significant as it could be the catalyst for a Bitcoin price rise past its current all-time high (ATH) of $73,700. Bitcoin and the broader crypto market reacted positively in September following the 50 bps rate cut at the September FOMC meeting.
It is worth mentioning that a Fed Rate cut decision will come just two days after the November 5 US presidential elections. As such, the aftermath of the elections, coupled with a rate cut, is the perfect recipe for a BTC and crypto market rally.
Crypto stakeholders like BitMEX co-founder Arthur Hayes have suggested that the crypto community should focus even more on the Fed’s decision rather than the US election. Arthur Hayes claimed that the US election outcome won’t impact BTC. Instead, he remarked that money printing and increased US debt issuance could ultimately boost Bitcoin.
However, according to a CoinGape market analysis, the Bitcoin price could suffer an 8% to 13% correction should Kamala Harris win the election. Meanwhile, if Donald Trump wins, BTC could easily surge past its ATH and rise to as high as $80,000.
Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
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