Binance Said to Be Probed by CFTC Over Derivatives Trading

Binance, which operates offices worldwide but claims to not have a headquarters, is not registered with the CFTC, but is being accused of having turned a blind eye to allowing US residents access to its derivatives trading desk.

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key takeaways

  • Digital assets derivatives trading is blocked on most trading platforms for US residents
  • Binance has been accused of allowing it to take place, despite ban

The US Commodity and Futures Trading Commission (CFTC) is said to be probing Binance for allowing US nationals to trade on its platform, according to a report by Bloomberg

Binance, which operates offices worldwide but claims to not have a headquarters, is not registered with the CFTC, but is being accused of having turned a blind eye to allowing US residents access to its derivatives trading desk. Digital assets derivatives, such as bitcoin futures, are a high-growth and profitable vertical for many trading platforms. Coinbase, which is preparing for a public listing, briefly offered the product to traders but is said to have terminated the offering after conversations with the CFTC.

“We take a collaborative approach in working with regulators around the world and we take our compliance obligations very seriously,” Binance said in a published statement. 

The exchange has yet to make any other public comments on the manner however founder and CEO, Changpeng Zhao, “CZ” tweeted that it was FUD. 

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Other trading platforms that offer derivatives and margin trading block the service to US residents. Binance.us, which is designed to offer a similar platform but provide regulatory compliant offerings, does not allow users to make such trades. 

In a prior interview with Blockworks, Braden Perry, a former CFTC attorney said that US-listed exchanges like Coinbase are at a “significant disadvantage” because of the regulatory uncertainty within the US and the “unlimited scope of enforcement powers by the SEC and CFTC.”

Similarly, in mid-2019, the CFTC launched an investigation into whether derivatives platform BitMEX allowed US residents to trade on its exchange. This led to the indictment of the exchange for violations of the Bank Secrecy Act and the arrest of its co-founders. Arthur Hayes, the platform’s CEO, is in the process of negotiating appearances at a court in Hawaii and has not surrendered to authorities.

Perry has also said in prior interviews that “the CFTC’s increasingly expanded view of their jurisdiction will likely be challenged, especially against offshore exchanges and participants that have limited ties to the United States.” It’s unclear where Binance has its corporate domicile, but there is little nexus to the US aside from users. 

According to CoinGecko, Binance’s BTC-USDT perpetual future product had over $20 billion in volume during the past 24 hours. Overall, its futures exchange pushed $60 billion on volume. 

Binance seems to be aware that it needs to engage proactively with policymakers. Earlier in the week, it announced it had hired former US Senator, and ambassador to China under the Obama administration, Max Baucus into a government relations role.

BNB, the exchange’s native token, dropped by 15% during the last 24 hours according to CoinGecko

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