This Article was last updated 2 days ago by Ola
FTX CEO Testifies Before House Agricultural Committee on Futures Market #FTX #CEO #Testifies #House #Agricultural #Committee #Futures #Market Welcome to TmZ Blog, here is the new story we have for you today:
FTX CEO Sam Bankman-Fried testified before the House Agricultural Committee on Friday following a proposal to regulate futures markets with automated tools.
Amidst skepticism, FTX CEO Sam Bankman-Fried made his case for using computers to perform margin calls on leveraged positions at a hearing on Friday in Washington, D.C.
In his testimony, Bankman-Fried testified that the new automated system would be healthy for markets.
“It would bring competition and innovation,” he said. “It would bring liquidity to the U.S. marketplace and options to U.S. consumers.” The new system would replace brokers making margin calls with a 24/7 computer service.
“Rather than choosing between liquidating a position too early over fear of what could happen over the next two days of exposing one’s self to systemic risk, there can be a real-time, more precise judgment about the health of the position,” he lobbied.
Terry Duffy, a top executive at the CME Group, presented an alternative view, bemoaning potential impacts on the market and arguing that current risk frameworks are proven, doing away with the need for automation.
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“Automatic liquidation could exacerbate volatility and create dramatic price moves during times of turbulence-with the potential to build losses on top of losses and destabilize markets for all participants.”
FIA argues need for human intervention
Duffy echoes statements made by the Futures Industry Association (FIA) on May 11, 2022, which said they did not know how reliable the algorithms would be in mitigating risk, arguing the need for human interventions.
“During market turbulence, immediately liquidating a large participant during cascading markets can…add to market volatility and may cause further defaults,” the body said, saying they highly value the judgment of finance specialists when making liquidation decisions.
Offering leveraged futures means that investors can enter significant positions on the market with a minimal investment called margin, borrowing the rest from the exchange.
FTX’s new product would need customers to deposit collateral in their FTX accounts, ensuring enough funds to cover their margins.
Currently, futures commission merchants (FCMs) collect margins and request more money overnight to support positions or help customers with their own money. FCMs also contribute to intermediaries between buyers and sellers called clearinghouses to share losses in the event of a default.