Misplaced Pages

#108891

96-490: FTX Trading Ltd. , commonly known as FTX (short for " Futures Exchange "), is a bankrupt company that formerly operated a cryptocurrency exchange and crypto hedge fund . The exchange was founded in 2019 by Sam Bankman-Fried and Gary Wang and collapsed in 2022 after massive fraud perpetrated by Bankman-Fried and his partner Caroline Ellison forced the company to file for Chapter 11 bankruptcy . At its peak in July 2021,

192-622: A $ 2 billion venture fund named FTX Ventures, raising $ 400 million in Series C funding at a $ 32 billion valuation that month. The FTX Ventures website went offline in November 2022. On February 11, 2022, FTX.US announced that the company would soon begin offering stock trading to its US customers. In February 2022, it was reported that FTX was creating a gaming division that would help developers add cryptocurrency, NFTs , and other blockchain-related assets into video games. In July 2022, FTX finalized

288-401: A cash settlement (typically for financial underlyings). The contracts ultimately are not between the original buyer and the original seller, but between the holders at expiry and the exchange. Because a contract may pass through many hands after it is created by its initial purchase and sale, or even be liquidated, settling parties do not know with whom they have ultimately traded. Each exchange

384-417: A collapse similar to FTX. BlockFi, a cryptocurrency lender, was reportedly taking steps to file for bankruptcy as of November 15. The firm had earlier begun preventing withdrawals. The company disclosed "significant exposure" to FTX on November 14. Another cryptocurrency lender, Genesis, a subsidiary of Digital Currency Group , halted withdrawals on November 16. This halt caused Gemini , an exchange owned by

480-585: A commodity acceptable for delivery and for any price adjustments applied to delivery. For example, the standard deliverable grade for CME Group's corn futures contract is "No. 2 Yellow", but holders of short positions in the contract can deliver "No. 3 Yellow" corn for 1.5 cents less than the contract delivery price per bushel . The locations where assets are delivered are also specified by the futures exchanges, and they may also specify alternative delivery locations and any price adjustments available when delivering to alternative locations. Delivery locations accommodate

576-522: A contract from another party (who goes short ). Contracts are also "destroyed" in the opposite manner whenever open interest decreases because traders resell to reduce their long positions or rebuy to reduce their short positions. Speculators on futures price fluctuations who do not intend to make or take ultimate delivery must take care to "zero their positions" prior to the contract's expiry. After expiry, each contract will be settled , either by physical delivery (typically for commodity underlyings) or by

672-657: A day or two." Meanwhile, Gary Wang, co-founder of FTX, and Caroline Ellison, who had served as Alameda's CEO, pleaded guilty to multiple charges and began cooperating with federal prosecutors. Former FTX executive Ryan Salame pleaded guilty to both a campaign finance law violation and a charge of operating an unlicensed money transmitting business. On May 28, 2024, Salame was sentenced to 7.5 years in prison and ordered to pay more than $ 5 million in restitution and forfeit an additional $ 6 million. Salame began serving his sentence in October 2024. On September 24, 2024, Caroline Ellison

768-508: A deal giving it the option to buy BlockFi for about $ 240 million. The deal included a $ 400 million credit facility for BlockFi. In August 2022, the Federal Deposit Insurance Corporation (FDIC) issued a cease-and-desist order to FTX for making "false and misleading representations" about deposits being covered by FDIC insurance following FTX president Brett Harrison's tweet implying otherwise. Following

864-417: A decline in the price of FTT and other cryptocurrencies, resulting in a three-day depositor sell-off, like a bank run , of an estimated $ 6 billion that sent FTX into crisis. On November 8, Zhao announced that Binance had entered into a non-binding agreement to purchase FTX due to what he referred to as a " liquidity crisis " at FTX. The deal did not include the sale of FTX.US. Zhao announced on Twitter that

960-559: A lack of liquidity. Bankman-Fried stated on November 9 that FTX.US, as a separate company, was "not currently impacted" by the crisis. On November 10, Axios cited anonymous sources who said that FTX approached Kraken for a potential rescue deal. Bankman-Fried made several statements on November 10, taking responsibility for FTX's failure and indicating that FTX was still seeking capital to remain solvent. Bankman-Fried also announced that Alameda Research would cease trading and end operations. FTX's in-house legal and compliance teams had, for

1056-561: A manner similar to the way FTX used FTT. Bloomberg reported that the collapse of FTX exacerbated institutional skepticism of cryptocurrencies as an asset class. In December, it emerged that FTX had secretly invested in The Block , a cryptocurrency news firm, and to fund an LLC its CEO Michael McCaffrey used to buy an apartment. Its staff said they had no knowledge of the investments. McCaffrey then resigned. Investment manager and short selling specialist Jim Chanos predicted in November 2022

SECTION 10

#1732780641109

1152-542: A method used by cryptocurrency thieves to thwart attempts to retrieve stolen funds. A person speaking on behalf of FTX referred to the "unauthorized transactions" as a "hack" and encouraged users to delete FTX mobile apps as they were compromised. Kraken offered to assist in identifying the perpetrator. In January 2024, the U.S. Department of Justice indicted three individuals for running a SIM swap scam operation that allegedly stole “over $ 400 million in virtual currency” from an unspecified company. Sources told Bloomberg that

1248-485: A national scale. Currently (August 2007) 62 commodities are being traded on the NMCE. The 1970s saw the development of the financial futures contracts, which allowed trading in the future value of interest rates . These (in particular the 90‑day Eurodollar contract introduced in 1981) had an enormous impact on the development of the interest rate swap market. The London International Financial Futures Exchange (LIFFE),

1344-466: A partnership with Major League Baseball to place the FTX logo on the uniforms of umpires, and a deal with Mercedes-AMG Petronas F1 Team to add the FTX logo to their cars and merchandise. The professional esports organization TSM also had a naming rights deal with FTX, thus the organization became TSM FTX. Other sponsorships included the title sponsorships of the first season of MLB Home Run Derby X , and

1440-840: A regional market was founded in Minneapolis, Minnesota , and in 1883 introduced futures for the first time. Trading continuously since then, today the Minneapolis Grain Exchange (MGEX) is the only exchange for hard red spring wheat futures and options. Futures trading used to be very active in India in the early to late 19th Century in the Marwari business community. Several families made their fortunes in opium futures trading in Calcutta and Bombay. There are records available of standardized opium futures contracts made in

1536-458: A replacement for Harrison, who had been FTX.US president since May 2021. In October 2022, it was reported that FTX was under investigation in Texas for allegedly selling unregistered securities. In August 2023, it was reported that the company plans to restart offering cryptocurrency trading services after a restructuring of the bankrupt company is completed. In September 2022, Bloomberg reported on

1632-457: A significant portion of Alameda Research's assets were held in FTT, the exchange token issued by FTX. It said that there were $ 5.1 billion worth of FTT tokens in circulation, and that Alameda's balance sheet held $ 3.66 billion of "unlocked FTT", $ 2.16 billion of "FTT collateral", and $ 292 million of "locked FTT". In the weeks immediately preceding the publication of the story by CoinDesk , Bankman-Fried

1728-460: A surplus would be left over. The exchange token of Crypto.com , Cronos, lost approximately $ 1 billion in value in November, a decline attributed in part due to the collapse of FTX and in part due to reporting that Crypto.com had accidentally sent $ 400 million of Ether to another exchange. On November 14, Crypto.com's CEO assured users that the exchange was functioning as normal. Commenters and customers remained fearful that Crypto.com could experience

1824-414: A transaction in which FTX bought back Binance's equity stake in FTX. Zhao cited "recent revelations that came to light" as the motivation for selling FTT. Bloomberg and TechCrunch reported that any sale by Binance would likely have an outsized impact on FTT's price, given the token's low trading volume. The announcement by Zhao of the pending sale and disputes between Zhao and Bankman-Fried on Twitter led to

1920-638: Is an abbreviation of "Futures Exchange". Changpeng Zhao of Binance purchased a 20% stake in FTX for approximately $ 100 million, six months after Bankman-Fried and Wang started the firm. In August 2020, FTX acquired Blockfolio, a cryptocurrency portfolio tracking app, for $ 150 million. In July 2021, the venture raised $ 900 million at an $ 18 billion valuation from over 60 investors, including Softbank , Sequoia Capital , and other firms. Bankman-Fried bought out Zhao's stake for approximately $ 2 billion. In September of that year, FTX moved its headquarters from Hong Kong to The Bahamas . On January 14, 2022, FTX announced

2016-501: Is normally regulated by a national governmental (or semi-governmental) regulatory agency: In Ancient Mesopotamia, around 1750 BC, the sixth Babylonian king, Hammurabi , created one of the first legal codes: the Code of Hammurabi . Hammurabi's Code allowed sales of goods and assets to be delivered for an agreed price at a future date; required contracts to be in writing and witnessed; and allowed assignment of contracts. The code facilitated

SECTION 20

#1732780641109

2112-513: Is only responsible for the initial and variation margin of a net 500 contracts. Exchange-traded contracts are standardized by the exchanges where they trade. The contract details what asset is to be bought or sold, and how, when, where and in what quantity it is to be delivered. The terms also specify the currency in which the contract will trade, minimum tick value, and the last trading day and expiry or delivery month . Standardized commodity futures contracts may also contain provisions for adjusting

2208-406: Is required by the exchange to protect themselves. Since clearing house members usually have many clients, they can net out margin payments from their client's offsetting positions. For example, if a clearing house member have half of their clients holding a total of 1000 long position in a contract, and half of their clients holding a total of 500 short position in a contract, the clearing house member

2304-530: Is rising daily. It counts for over $ 45.5 billion of nominal trade (over 1 million contracts) every single day in " electronic trading " as opposed to open outcry trading of futures, options and derivatives. In June 2001 Intercontinental Exchange (ICE) acquired the International Petroleum Exchange (IPE), now ICE Futures, which operated Europe's leading open-outcry energy futures exchange. Since 2003 ICE has partnered with

2400-473: Is unprecedented." Speaking to the House Committee on Financial Services , he testified that "literally, there's no record-keeping whatsoever" and that the company used the small-business accounting tool QuickBooks for its accounting needs, despite handling "billions of dollars." In a court filing filed by FTX on May 8, 2024, FTX told that court that most FTX customers would get all their money back and

2496-717: The New York Times said that the exchange owed as much as $ 8 billion. Bankman-Fried resigned as CEO and was replaced by John J. Ray III , a corporate restructuring specialist who'd previously overseen the liquidation of Enron . Late on November 11, over $ 473 million in funds were siphoned from FTX through what Ryne Miller, FTX US's general counsel, characterized as "unauthorized transactions". Miller announced that FTX and FTX US intended to move remaining funds denominated in cryptocurrency to offline "cold storage" for security. The funds taken from FTX were mostly stablecoins such as Tether , and were quickly exchanged for Ether ,

2592-410: The New York Times said the same. According to the sources cited by The Wall Street Journal , Ellison said the funds were used in part to pay back loans Alameda had taken to make investments. Ray said that FTX used software to conceal the misuse of customer funds. Several months after Bloomberg's initial report on the relationship between the two firms, on November 2, 2022, CoinDesk reported that

2688-541: The New York Times on November 14 said the same. According to the sources cited by The Wall Street Journal , Ellison said the funds were used in part to pay back loans Alameda had taken to make investments. Though Bankman-Fried, on November 10, wrote on Twitter that FTX's US customers did not have reason to worry, employees began attempting to sell assets belonging to the firm on the same day. These assets include stock-clearing company Embed Financial Technologies and

2784-502: The Ontario Teachers' Pension Plan , SoftBank Group , BlackRock , Lightspeed Venture Partners , Temasek , and Sequoia Capital . Sequoia Capital wrote down its equity in FTX to $ 0 on November 9, losing some $ 214 million. Sequoia released a notice to investors, also published on Twitter, assuring them the firm's stake in FTX represented a small amount of its overall portfolio, and replaced a profile of Bankman-Fried published on

2880-611: The Winklevoss twins , to cease allowing redemptions for clients using a service provided through a partnership with Genesis. Another Digital Currency Group subsidiary, Grayscale, saw the value of its flagship offering, the publicly traded Grayscale Bitcoin Trust, decline by 20% over the two weeks preceding November 17. Grayscale Bitcoin Trust was trading at a discounted price, 42% below the value of its Bitcoin, as of November 14. Concerns have also been raised about Silvergate Bank , as FTX

2976-425: The credit risk of their counterparty , in this case the central counterparty clearing houses . Traders on both sides of a trade has to deposit Initial Margin, and this amount is kept by the clearing house and not remitted to other traders. Clearing houses calculate day-to-day profit and loss amounts by ' marking-to-market ' all positions by setting their new cost to the previous day's settlement value, and computing

FTX - Misplaced Pages Continue

3072-605: The 1870-1880s in Calcutta. There are strong grounds to believe that commodity futures could have existed in India for thousands of years before then, with references to the existence of market operations similar to the modern day futures market in Kautilya's Arthashastra written in the 2nd century BCE. The first organised futures market was established in 1875 by the Bombay Cotton Trade Association to trade in cotton contracts. This occurred soon after

3168-499: The Amsterdam-Brussels-Lisbon-Paris Exchanges "Euronext" electronic exchange to form the first transcontinental futures and options exchange. These two developments as well as the sharp growth of internet futures trading platforms developed by a number of trading companies clearly points to a race to total internet trading of futures and options in the coming years. In terms of trading volume,

3264-535: The CME Group's Mini Nasdaq 100 contract is on 20 times the Nasdaq 100 index. Futures exchanges provide access to clearing houses that stand in the middle of every trade. Suppose trader A purchases US$ 145,000 of gold futures contracts from trader B. Trader A really bought a futures contract to buy US$ 145,000 of gold from the clearing house at a future time, and trader B really has a contract to sell US$ 145,000 to

3360-552: The Chairman of the Commodity Futures Trading Commission , called for Congress to grant the organization more power to regulate cryptocurrencies. The financial impact of the collapse having reached beyond the immediate FTX customer base, financial industry executives said at a Reuters conference that "regulators must step in to protect crypto investors." Technology analyst Avivah Litan commented on

3456-483: The Chicago Climate Exchange (CCX) to host its electronic marketplace. In April 2005 the entire ICE portfolio of energy futures became fully electronic. In 2005, The Africa Mercantile Exchange (AfMX®) became the first African commodities market to implement an automated system for the dissemination of market data and information online in real-time through a wide network of computer terminals. As at

3552-706: The US and violate campaign finance laws. After being extradited from the Bahamas, Bankman-Fried was released on a $ 250 million bond and ordered to remain under house arrest at his parents' home in Palo Alto, California . He was arraigned in federal court in Manhattan on January 3, 2023, and entered a plea of not guilty to all counts. Judge Lewis A. Kaplan set the trial date for United States v. Bankman-Fried for October 2, 2023, saying he might move it "forward or backward

3648-419: The US court system. Public concern began with rumors of unethical and fraudulent inter-company transfers of client funds . In November 2022 CoinDesk also raised concerns stating that FTX's partner firm Alameda Research held a significant portion of its assets in FTX's native token (FTT). Following this revelation, rival exchange Binance 's CEO Changpeng Zhao announced that Binance would sell its holdings of

3744-617: The addition of the New York Mercantile Exchange (NYMEX) the trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the global financial system , trading over $ 1.5 trillion per day in 2005. The recent history of these exchanges (Aug 2006) finds the Chicago Mercantile Exchange trading more than 70% of its futures contracts on its "Globex" trading platform and this trend

3840-404: The amount of deliverable assets for each contract, which determines a contract's size. Contract sizes that are too large will dissuade trading and hedging of small positions, while contract sizes that are too small will increase transaction costs since there are costs associated with each contract. In some cases, futures exchanges have created "mini" contracts to attract smaller traders. For example,

3936-489: The bankruptcies of Enron , Residential Capital , Nortel and Overseas Shipholding , stated, "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation

FTX - Misplaced Pages Continue

4032-429: The clearing house at that same time. Since the clearing house took on the obligation of both sides of that trade, trader A does not have to worry about trader B becoming unable or unwilling to settle the contract – they do not have to worry about trader B's credit risk . Trader A only has to worry about the ability of the clearing house to fulfill their contracts. Even though clearing houses are exposed to every trade on

4128-659: The clearing house. Several popular methods are used to compute initial margins. They include the CME-owned SPAN (a grid simulation method used by the CME and about 70 other exchanges), STANS (a Monte Carlo simulation based methodology used by the Options Clearing Corporation (OCC) ), TIMS (earlier used by the OCC, and still being used by a few other exchanges). Traders do not interact directly with

4224-469: The close relationship between Alameda Research and FTX. Bloomberg noted that Alameda had functioned as a market maker for FTX early in the exchange's history, and that the trading firm remained, in June and July 2022, the biggest known depositor of stable coins on FTX. Bloomberg further stated that the regulatory oversight which applies to companies operating in traditional equities markets would have prohibited

4320-515: The collapse of FTX would lead to "increased scrutiny and regulation" over cryptocurrencies. Chanos criticized the cryptocurrency sector as "designed to extract fees from really unsuspecting investors". Richard Handler , CEO of American financial firm Jefferies Group , tweeted on November 10 that he had attempted to meet with Bankman-Fried in July and again in September, as he perceived the FTX CEO

4416-437: The collapse of FTX, and committee leaders said they would seek testimony from Bankman-Fried. According to anonymous sources cited by The Information , some venture capital firms are considering suing Bankman-Fried. On December 13, 2022, FTX founder and CEO Sam Bankman-Fried was charged by the US attorney's office for the southern district of New York with fraud, conspiracy to commit money laundering, and conspiracy to defraud

4512-694: The collapse of FTX, the Royal Bahamas Police Force launched a criminal investigation into the company. Anonymous sources cited by Bloomberg said that the office of the United States Attorney for the Southern District of New York had begun an investigation into FTX's collapse as of November 14, 2022. The United States House Committee on Financial Services announced it plans to conduct hearings in December on

4608-619: The company had over one million users and was the third-largest cryptocurrency exchange by volume. As of November 2022, FTX was the third-largest digital currency exchange boasting an active trading volume of USD 10 billion and a valuation of USD 32 billion. FTX is incorporated in Antigua and Barbuda and headquartered in the Bahamas . FTX is closely associated with FTX.US , a separate exchange available to US residents. Since November 11, 2022, FTX has been in Chapter 11 bankruptcy proceedings in

4704-441: The company was FTX. As of November 12, Bankman-Fried told Reuters that he was still in the Bahamas, though other high-ranking FTX employees had begun leaving for Hong Kong, the location of the company's former headquarters, or other locations. Authorities in the Bahamas, including the Royal Bahamas Police Force , questioned Bankman-Fried on November 12. Despite FTX's bankruptcy, Bankman-Fried continued to attempt to raise money for

4800-410: The company would complete due diligence soon, adding that all cryptocurrency exchanges should avoid using FTT tokens as collateral. He also wrote that he expected FTT to be "highly volatile in the coming days as things develop". On the day of that announcement, FTT price dropped by 80 percent, erasing $ 2 billion in value. On November 9, Bloomberg called the acquisition of FTX by Binance "unlikely" due to

4896-539: The contracted price based on deviations from the "standard" commodity, for example, a contract might specify delivery of heavier USDA Number 1 oats at par value but permit delivery of Number 2 oats for a certain seller's penalty per bushel. Before the market opens on the first day of trading a new futures contract, there is a specification, but no actual contracts exist. Futures contracts are not issued like other securities, but are "created" whenever open interest increases; that is, when one party first buys (goes long )

SECTION 50

#1732780641109

4992-441: The cryptocurrency ecosystem that "everything...needs to improve dramatically in terms of user experience, controls, safety, [and] customer service." Risk management firm Titan Grey published a primer on the commencement and early motions practice of the FTX chapter 11 case, analyzing issues such as creditor privacy, relief from the automatic stay, proposed differential treatment of customers from other creditors, and others. Following

5088-495: The development of a market enabling grain merchants, processors, and agriculture companies to trade in "to arrive" or "cash forward" contracts to insulate them from the risk of adverse price change and enable them to hedge . In March 2008 the CME announced its acquisition of NYMEX Holdings, Inc., the parent company of the New York Mercantile Exchange and Commodity Exchange. CME's acquisition of NYMEX

5184-426: The difference between their current day settlement value and new cost. When traders accumulate losses on their position such that the balance of their existing posted margin and their new debits from losses is below a thresh-hold called a maintenance margin (usually a fraction of the initial margin) at the end of a day, they have to send Variation Margin to the exchange who passes that money to traders making profits on

5280-538: The end of 2007, AfMX® had developed a system of secure data storage providing online services for brokerage firms. The year 2010, saw the exchange unveil a novel system of electronic trading, known as After®. After® extends the potential volume of processing of information and allows the Exchange to increase its overall volume of trading activities. In 2006 the New York Stock Exchange teamed up with

5376-696: The establishment of trading in cotton Futures in UK, as Bombay was a very important hub for cotton trade in the British Empire. Futures trading in raw jute and jute goods began in Calcutta with the establishment of the Calcutta Hessian Exchange Ltd., in 1919. In modern times, most of the futures trading happens in the National Multi commodity Exchange (NMCE) which commenced futures trading in 24 commodities on 26 November 2002 on

5472-401: The exchange – they interact with clearing house members, usually futures brokers, who pass contracts and margin payments on to the exchange. Clearing house members are directly responsible for initial margin and variation margin requirements at the exchange even if their clients default on their obligations, so they may require more initial margin (but not variation margin) from their clients than

5568-461: The exchange, they have more tools to manage credit risk. Clearing houses can issue Margin Calls to demand traders to deposit Initial Margin moneys when they open a position, and deposit Variation Margin (or Mark-to-Market Margin) moneys when existing positions experience daily losses. A margin in general is collateral that the holder of a financial instrument has to deposit to cover some or all of

5664-558: The fall of 2021 regarding a $ 100 million sponsorship deal but negotiations were broken off the following spring without a deal being reached. Futures exchange Futures exchanges establish standardized contracts for trading on their trading venues, and they usually specify the following: assets to be delivered in the contract, delivery arrangements, delivery months, pricing formula for daily and final settlement, contract size, and price position and limits. For assets to be delivered, futures exchanges usually specify one or more grades of

5760-413: The firm during the weekend of November 12 and 13. On November 14, Kraken's chief security officer said on Twitter that the firm knew "the identity" of a user who paid transaction fees associated with moving the stolen money through their Kraken account. In an interview with Kelsey Piper published November 16 by Vox , Bankman-Fried blamed an "ex-employee" or malware on a device owned by an ex-employee for

5856-446: The firm's website with a link to the same notice. The Ontario Teachers' Pension Plan released a similar statement. Temasek later wrote down its investment on November 16. Several public figures also invested in FTX or received compensation for promoting the company. These include football player Tom Brady , basketball players Shaquille O'Neal and Stephen Curry , model Gisele Bündchen , and businessman Kevin O'Leary . Gisele Bündchen

SECTION 60

#1732780641109

5952-502: The first derivatives, in the form of forward and futures contracts. An active derivatives market existed, with trading carried out at temples. One of the earliest written records of futures trading is in Aristotle 's Politics . He tells the story of Thales , a poor philosopher from Miletus who developed a "financial device, which involves a principle of universal application". Thales used his skill in forecasting and predicted that

6048-548: The forward contracts market was very illiquid, and an exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller. In 1848 the Chicago Board of Trade (CBOT) was formed. Trading was originally in forward contracts ; the first contract (on corn) was written on March 13, 1851. In 1865 standardized futures contracts were introduced. The Chicago Produce Exchange

6144-426: The losing side of the position would have already sent the whole amount, they owe to the profiting side of the position. The clearinghouse do not keep any variation margin. When traders cannot pay the variation margin they owe or are otherwise in default the clearing house closes their positions and tries to cover their remaining obligations to other traders using their posted initial margin and any reserves available to

6240-711: The messages all read "What HAPPENED". On November 15, FTX sought to raise $ 10 billion in liquidity from investors. On November 16, the Bahamas unit of FTX, FTX Digital Markets, officially filed for Chapter 15 bankruptcy protection in the United States. On November 17, John J. Ray III , the CEO brought in as a liquidator , stated in a sworn declaration submitted in bankruptcy court that, according to FTX's records, its subsidiary Alameda Research had on September 30 lent $ 1 billion to Bankman-Fried and more than $ 500 million to FTX co-founder Nishad Singh. Ray, having been involved in

6336-646: The most part, resigned by November 10. Anonymous sources cited by the Wall Street Journal on November 10 said that Alameda Research owed FTX some $ 10 billion, as FTX had lent funds placed on the exchange for trading to Alameda so that Alameda could make investments with the money. On November 12, anonymous sources cited by the Wall Street Journal said Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew that client deposits were transferred from FTX to Alameda. An anonymous source cited by

6432-485: The naming rights to FTX Arena . On November 10, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd, "and related parties", and provisionally appointed an attorney as liquidator. Japan's Financial Services Agency ordered FTX Japan to suspend some operations. The company's Australian subsidiary was placed under administration . On November 10,

6528-414: The olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or pathetic and because

6624-470: The olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and a sharp increase in demand for the use of the olive presses outstripped supply (availability of the presses), he sold his future use contracts of the olive presses at a rate of his choosing, and made a large amount of money. This is a very loose example of futures trading and, in fact, more closely resembles an option contract , given that Thales

6720-401: The opposite side of that position. When traders accumulate profits on their positions such that their margin balance is above the maintenance margin, they are entitled to withdraw the excess balance. The margin system ensures that on any given day, if all parties in a trade closed their positions after variation margin payments after settlement, nobody would need to make any further payments as

6816-519: The particular delivery, storage, and marketing needs of the deliverable asset. For example, ICE frozen concentrate orange juice contracts specify delivery locations as exchange-licensed warehouses in Florida, New Jersey, or Delaware, while in the case of CME live cattle contracts, delivery is to exchange-approved livestock yards and slaughter plants in the Midwest. The futures exchange also determines

6912-640: The poor state of FTX's finances. Bloomberg also reported that the United States Securities and Exchange Commission and Commodity Futures Trading Commission were investigating the nature of FTX's connections to Bankman-Fried's other holdings and its handling of client funds. Later that day, the Wall Street Journal reported that Binance would not move forward with the deal to acquire FTX. Binance cited FTX's reported mishandling of customer funds and pending investigations of FTX as

7008-410: The reasons for not pursuing the deal. Bankman-Fried said in a Slack message that FTX had learned through the press about Binance's concern and decision. On November 9, FTX's website said that it was not processing withdrawals at that time. Bankman-Fried said that although the firm's assets were worth more than its clients' deposits, it would need funds from outside to meet demand for withdrawals due to

7104-544: The regulatory action, Harrison deleted the tweet and Bankman-Fried clarified in another tweet that FTX deposits are not insured by the FDIC. On September 26, 2022, FTX.US won its bid at auction for the digital assets of bankrupt crypto brokerage Voyager Digital . The value of the deal was approximately $ 1.42 billion, including $ 1.31 billion in Voyager-held cryptocurrency and $ 111 million in additional consideration. The deal

7200-439: The relationship between the two firms were it applicable. Alameda's trading on FTX meant the trading firm was potentially in a position to gain financially when others lost money on the exchange. Bankman-Fried defended FTX's use of Alameda as a liquidity provider. According to John J. Ray III , Alameda had a "secret exemption" from FTX's auto-liquidation protocol. Later, the existence of such an undisclosed beneficial relationship

7296-659: The team running the FTX Future Fund, an ostensibly charitable group bankrolled by Bankman-Fried, announced that they had resigned earlier that day. Future Fund had committed $ 160 million in charitable grants and investments by September 1 of that year. Crypto lender BlockFi, which was affiliated with FTX, announced on November 10 that it was suspending operations as a result of FTX's collapse. On November 11, FTX, FTX.US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware. Anonymous sources cited by

7392-524: The theft. According to anonymous sources cited by Reuters , between $ 1 billion and $ 2 billion in customer funds could not be accounted for as of November 12. The Financial Times reported that FTX's balance sheet shortly before the bankruptcy showed $ 9 billion in liabilities, with $ 900 million in liquid assets , $ 5 billion in "less liquid" assets, and $ 3.2 billion in illiquid private equity investments. Bankman-Fried began publishing "cryptic" messages in sequence on Twitter on November 14. As of November 15,

7488-611: The title sponsorship of the tournaments FTX Road to Miami and FTX Crypto Cup as part of the Champions Chess Tour 2022 . Following the bankruptcy of FTX in November 2022, Mercedes-AMG F1, TSM and the Miami Heat cut ties with the company, with the latter also announcing that they would be seeking a new naming rights partner for the FTX Arena. FTX held talks with American singer-songwriter Taylor Swift starting in

7584-486: The token, which was quickly followed by a spike in customer withdrawals from FTX. FTX was unable to meet the demand for customer withdrawals. Binance signed a letter of intent to acquire the firm, with due diligence to follow, to ensure that customers could recover their assets from FTX in a timely manner, but Binance withdrew its offer the next day, citing reports of mishandled customer funds and U.S. agency investigations. On December 12, 2022, founder Sam Bankman-Fried

7680-645: The trade is around $ 11.6 trillion annually. Chicago has the largest future exchange in the world, the CME Group . The CME Group's oldest exchange was founded in 1848. Chicago is located at the base of the Great Lakes , close to the farmlands and cattle country of the Midwest , making it a natural center for transportation, distribution, and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price, and this led to

7776-649: Was "in over his head". Handler stated that Bankman-Fried did not respond to the emails sent from Jefferies staff on Handler's behalf. The sudden collapse of FTX has been compared to the bankruptcy of Lehman Brothers in publications such as The New York Times and the Financial Times . Lawrence Summers acknowledged the comparisons to Lehman and further compared the collapse to the Enron scandal , caused by fraud perpetrated by Enron executives. Rostin Behnam ,

7872-402: Was a depositor and could have also been a source of credit exposure. Silvergate has said that it has ample liquidity and no loan exposure to FTX. These concerns have been magnified due to Silvergate's key role as a gateway between its cryptocurrency clients and the wider financial world. Institutional investors that stand to lose money due to their stakes in FTX include Tiger Global Management ,

7968-417: Was affiliated with Bankman-Fried, declined as well. The crisis at FTX has inspired an increase in withdrawals from other exchanges. A decline in the value of Cronos, the token of exchange Crypto.com , triggered fears of the potential for a collapse similar to that of FTX and spurred withdrawals from the platform. CEO Kris Marszalek provided assurances that the firm was liquid and that it did not use Cronos in

8064-872: Was also appointed the ESG advisor for the cryptocurrency platform. After its bankruptcy, investors sued her for her involvement and accused her of participating in FTX's alleged scheme to take advantage of unsophisticated investors. Anthony Scaramucci , founder of SkyBridge Capital , announced the firm was attempting to buy back a 30% stake in the business owned by FTX. Cryptocurrency investment firms with assets still held on FTX after its bankruptcy include Galois Capital and Galaxy Digital. Cryptocurrencies experienced swings and declines in value as news of FTX's collapse first emerged in early November: Tether dropped below its peg price of $ 1.00 to $ 0.97 and Bitcoin sank to its lowest price in two years. Share prices for publicly traded cryptocurrency companies declined. The price of Solana , which

8160-687: Was arrested by the Bahamian authorities for financial offences, at the request of the US government. The current CEO of FTX is John J. Ray III , who specializes in recovering funds from failed corporations. Sam Bankman-Fried and Zixiao "Gary" Wang founded FTX in May 2019. FTX began within Alameda Research , a trading firm founded by Bankman-Fried, Caroline Ellison , and other former employees of Jane Street in 2017, in Berkeley, California. FTX

8256-632: Was characterized by anonymous sources cited by Bloomberg as "desperately" attempting to raise money for FTX. Additionally, Bankman-Fried had been publicly "dueling" with Changpeng Zhao on Twitter in the months preceding the CoinDesk article, in part due to disagreements stemming from their differing views on the regulation of cryptocurrency. Several days after the publication of the CoinDesk article, on November 6, Binance CEO Changpeng Zhao said on Twitter that his firm intended to sell all its holdings of FTT. Binance had received FTT from FTX in 2021 during

8352-484: Was completed in August 2008. For most exchanges, forward contracts were standard at the time. However, forward contracts were often not honored by either the buyer or the seller. For instance, if the buyer of a corn forward contract made an agreement to buy corn, and at the time of delivery the price of corn differed dramatically from the original contract price, either the buyer or the seller would back out. Additionally,

8448-613: Was conducted by traders in London coffee houses using a makeshift ring drawn in chalk on the floor. At first only copper was traded. Lead and zinc were soon added but only gained official trading status in 1920. The exchange was closed during World War II and did not re-open until 1952. The range of metals traded was extended to include aluminium (1978), nickel (1979), tin (1989), aluminium alloy (1992), steel (2008), and minor metals cobalt and molybdenum (2010). The exchange ceased trading plastics in 2011. The total value of

8544-587: Was described by Ray, the new CEO of FTX, as a "complete failure of corporate controls" and indicated gross mismanagement. Between early 2021 and March 2022, Alameda Research amassed crypto tokens ahead of FTX announcing the decision to list them for trading. According to anonymous sources cited by The Wall Street Journal, FTX had lent $ 10 billion of its customers' assets to Alameda Research in 2022. Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew about that decision. An anonymous source cited by

8640-605: Was established in 1874, renamed the Chicago Butter and Egg Board in 1898 and then reorganized into the Chicago Mercantile Exchange (CME) in 1919. Following the end of the postwar international gold standard , in 1972 the CME formed a division called the International Monetary Market (IMM) to offer futures contracts in foreign currencies: British pound , Canadian dollar , German mark , Japanese yen , Mexican peso , and Swiss franc . In 1881

8736-576: Was launched in 1982, to take advantage of the removal of currency controls in the UK in 1979. The exchange modelled itself after the Chicago Board of Trade and the Chicago Mercantile Exchange. LIFFE was acquired by Euronext in 2002, which in turn was acquired by NYSE in 2006. The combined NYSE Euronext, including LIFFE, was purchased by ICE in 2014. Today, the futures markets have far outgrown their agricultural origins. With

8832-590: Was not obliged to use the olive presses if the yield was poor. The first modern organized futures exchange began in 1710 at the Dojima Rice Exchange in Osaka , Japan. The London Metal Market and Exchange Company ( London Metal Exchange ) was founded in 1877, but the market traces its origins back to 1571 and the opening of the Royal Exchange, London . Before the exchange was created, business

8928-501: Was ordered by a US court to pay $ 12.7 billion in compensation to former customers and fraud victims. The Commodity Futures Trading Commission called this the "largest such recovery" in their history. The sum consists of $ 8.7 billion in restitution, and $ 4 billion in disgorgement. FTX sponsored a number of sports teams and organizations. Deals included the naming rights to the Miami Heat 's basketball stadium, renaming it FTX Arena ,

9024-429: Was sentenced to time served and three years of supervised release based on his cooperation with prosecutors and Judge Kaplan’s view that Singh’s role in the fraud was “much more limited” than his colleagues. On November 20, 2024, Gary Wang was sentenced to time served and three years of supervised release, with Kaplan saying Singh was “entitled to a lot of credit” for his cooperation with prosecutors. In August 2024, FTX

9120-526: Was sentenced to two years in prison on charges including wire fraud and money laundering. While Judge Kaplan acknowledged the assistance she’d provided to prosecutors, he said her cooperation should not be a “get out of jail free card.” FTX's former engineering director, Nishad Singh pleaded guilty to six different charges, including three counts of conspiracy to commit fraud. Singh is a childhood friend of Bankman-Fried's brother and worked at Alameda Research before being brought into FTX. On October 30, 2024, Singh

9216-435: Was subject to approval by bankruptcy courts and Voyager's creditors. Following the FTX bankruptcy, in December 2022, the US subsidiary of Binance won the bid to buy the assets of Voyager for approximately $ 1 billion. On September 27, 2022, FTX.US President Brett Harrison announced he would be stepping down from an active role at the exchange but would stay on in an advisory capacity. The company did not immediately announce

#108891