CBOE Digital reassures customers amidst FTX liquidity crunch

CBOE Digital, a US-regulated crypto exchange and clearinghouse, issued a letter on Wednesday, November 9, 2022, to its customers to reassure them about asset safeguards amid the FTX liquidity crisis and Sam Bankman-Fried’s bankruptcy.

CBOE Digital, a subsidiary of CBOE Global Markets Inc., sent a letter on Wednesday to its customers addressed as the “crypto community,” reminding them of its own “customer protection policies, the benefits of regulatory oversight and the value of including intermediaries in our marketplace.”

CBOE Digital is a US-regulated exchange and clearing house for the crypto spot and crypto derivatives market. President John Palmer wrote:

“To protect member funds and assets, Cboe Digital is obligated to completely segregate customer assets from our own assets by holding them at a bank in a specially designated account, for the benefit of our members, and separate from the operating funds of Cboe Digital.”

Palmer noted that these actions are required by the U.S. Commodity Futures Trading Commission (CFTC), which regulates CBOE Digital’s exchange and clearinghouse businesses.

The letter also explained how CBOE approaches several possible risks of unregulated markets, among them counter-party risk and customer asset protection.

“Cboe Digital acts as a central counter-party enabling buyers and sellers to trade with each other,” the letter states. “We do not act as a trading counter-party versus our customers.”

CBOE and FTX in a cold war

CBOE Digital has formally opposed FTX’s proposal in a letter to the agency that argued that something this important should be done in a new rule instead of an application process.

“Enabling access via intermediaries ensures that there are multiple points of risk and credit control, customer protection, separation of business function/duty, and management of conflicts of interest,” the company said in its letter this week.

Bankman-Fried said his FTX US remains separate from the negotiations over the purchase of FTX’s non-U.S. assets, which ended Wednesday after Binance said it was walking away from the deal. The derivatives subsidiary is in that U.S. arm. But the situation is already casting a shadow over the CFTC application, and the status of the U.S. operations remains unclear.

What is CBOE Exchange?

CBOE Digital is a subsidiary of Cboe Global Market Inc. CBOE offers trading across multiple asset classes and geographies, including options, futures, U.S. and European equities, exchange-traded products (ETPs), global foreign exchange(FX), and multi-asset volatility products.

It was recently rebranded from ErisX, the spot and derivatives exchange that Cboe Global Markets first said it would acquire in October 2021. CBOE Global Markets announced in August that its ErisX business would be renamed CBOE Digital. It also said it was in talks with a host of potential equity partners, with Robinhood, Jump Crypto, Jane Street, and Interactive Brokers among the possibilities.