Brett Harrison: belief

Transcript context

…During those hearings, I guess the establishment CME and others brought up criticisms like, oh, we have these sort of biscuit relationships with our clients. And if you just have this algorithm take its place, you can have these liquidation cascades where illiquid assets, they start getting sold. That drives the price even lower, which causes more liquidations from this algorithm. And you have this sort of cascade where the bottom falls out. And even though it might not be an accurate way to describe what happened with FtT and FTX because there was obviously more going on, do you think that they maybe had a point, given how FTX has played out? A lot of FCMs have auto liquidation. There is one particular one where they actually automatically close you every day at 04:00 p.m., and they do it in a really bad way. So the idea of auto liquidation is not new. The idea of direct to customer clearing is not new. The idea of cross collateralization is not new. The thing I think that was novel about FTX was putting all together, it was direct to customer margining, cross collateralization, auto liquidation. And so in order for the regulators to get comfortable with the application, they had to understand that FTX was one entity was performing the roles that typically multiple different entities perform. And you always need to ask yourself the question of, like, was there something worthwhile about having those different entities be separate or not? Is it just sort of legacy regulatory structure? I think that remains to be seen. And I think we don't have enough experience, especially in the US. With that kind of model, to be able to say whether it actually works better or worse. I think either way, it was worth a try. And I think maybe the biggest misconception about the application was that if we got approved, it meant suddenly FTX is going to list everything from corn to soybeans to oil to SMP 500 overnight and completely, you know, destroy the existing derivatives landscape. I think what have actually happened was FTX would have gotten permission to list, like, one contract on kind of small size and there would have been experience with the platform and it would have been assessed compared to the alternatives on traditional CCPS. And if it was worse, changes would have been made and if it was better, it would evolve and the market would basically decide what people wanted to trade on. I do think the auto liquidation part was the main piece that people were hung up on, which was like, how do you provably show the kind of worst case scenario in auto liquidation cascade? Then again on large TCPS. Now in the US and Europe, there are margin breaches all the time. The current system is far from perfect. Backing up to, I guess, regulation more generally. I mean, many people saw crypto as a sort of regulatory arbitrage where because regulations are so broken in finance, I guess evidence would be that you're not allowed to do this manually, right? You had to go through the lengthy approval process. If you're a giant company to begin with, the entire point of crypto was to get around the regulators and not go through them to get approval for things and hand over that kind of approval process to them. Do you think that working with the regulators and then also being part of crypto was a sort of like it kind of defeated the point of crypto?…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.