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FTX Came Dangerously Close to Upending Futures Markets

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Read more: Crypto Billionaire Rankles Wall Street With Futures-Trading Plan

It was largely brushed off back then. “All change creates tension,” said David Weisberger, who earlier in his career built trading systems for Morgan Stanley and Two Sigma and now runs crypto company CoinRoutes. Mark Wetjen, a former CFTC commissioner who was head of policy and regulatory strategy for FTX’s US arm at the time, mused that it’s “just a natural human behavior to respond a certain way when something seems new or novel.”

Plumbing Purchases

Bankman-Fried’s efforts to expand FTX into the depths of financial market plumbing only grew stronger after Boca Raton.

As part of FTX’s buying spree when crypto markets were plunging in the spring, it bought a young clearing firm called Embed. Clearing firms are yet another piece of market structure that exist to keep trading risks in check, but that few pay attention to until there’s a reason.

One example of such a crisis: Robinhood Markets Inc.’s liquidity crunch during the runaway rally in GameStop Corp., which led to a Congressional hearing about what happened during the meme stock mania.

Bankman-Fried in May acquired a 7% stake in Robinhood. He spoke to people in his orbit about wanting to buy the whole company one day.

The fate of that Robinhood position is now in limbo. Bankman-Fried acquired it through an entity called Emergent Fidelity Technologies, which isn’t listed in FTX’s bankruptcy filings, though it was listed as an asset on FTX’s balance sheet. Still worth more than $500 million, it’s likely to come up as FTX’s more than 1 million customers look to recover some of their missing money.

Uneasy Relief

In the ground level exhibition hall at the Sheraton Grand Chicago Riverwalk, participants this week still can’t quite believe that they were so close to having Bankman-Fried again strolling through the hallways and once again stealing the show.

Instead, Bankman-Fried is facing a possible trip to the US for questioning — American and Bahamian authorities have been discussing bringing him stateside, with conversations between law-enforcement officials in the two countries intensifying in recent days as they probe his role in FTX’s implosion.

Read more: Sam Bankman-Fried Facing Possible Trip to US for Questioning

At the conference, Gerry Corcoran described a feeling of relief. Corcoran is the CEO of R.J. O’Brien & Associates, one of the futures market intermediaries that FTX.US was trying to skirt around.

“The current system in place for the futures industry is safe, robust, and proved over time,” Corcoran said in an interview.

Others noted FTX’s implosion is forcing people to look more closely at areas of the finance industry that are typically afterthoughts. 

“When an issue like this happens, it really shines a light,” said Alicia Crighton, a partner at Goldman Sachs Group Inc.

Near the short rib macaroni and cheese congealing in a chafing dish at the after-hours drinks reception, attendees wondered aloud what consequences Bankman-Fried and his associates, including Ellison, will face.

Despite the conference organizers’ best efforts, some of FTX’s fingerprints remained.

There’d been no time to reprint the programs. FTX appeared alongside CME and Barclays Plc on the back cover.

 

–With assistance from and .

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.



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