SEC Asks Crypto Firms to Disclose FTX Exposure
Ever since FTX shut down, the public is constantly finding out which companies had exposure to the now-defunct exchange and the extent of this exposure. From those who seem to be fine to others like BlockFi who have been forced to file for bankruptcy, the public’s interest in the developing story has been piqued.
Now, it turns out that the Securities and Exchange Commission (SEC) in the US is also interested in firms that have FTX exposure. In a new guidance document from the SEC’s Division of Corporate Finance, firms are being asked to declare their exposure to bankrupt companies.
This new guidance focuses on the information that companies might be required to disclose to their investors. Among these are whether the company has significant exposure to any firm that has recently become bankrupt or financially insolvent. In the official post on its website, the SEC did not mince words about what triggered this new guidance.
“Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets. Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business,” the SEC said, adding that it regularly reviews filings made under the Securities Act of 1933 and the Securities Exchange Act of 1934 and published a sample letter that might be sent out to companies moving forward.
Within the document, some comments were made that emphasize the need for the companies to disclose their exposure. The first question asks if any significant crypto market developments have occurred that would have impacted the business. Another asks how the bankruptcy of some hypothetical firms and their downward effects have impacted the business. All in all, these questions are geared towards determining the level of exposure and the effects of this exposure.
And there is certainly reason for the SEC to be interested in this. Besides the accusations of financial mismanagement on the part of FTX, its collapse has caused a sort of domino effect in which FTX has shut down, some of the firms that had exposure to it have also shut down and now, there are different pockets of creditors who find themselves scrambling to get some of their money back.
The Regulatory Blowback of FTX
It is no secret that the whole FTX saga has caused a greater emphasis on crypto regulations around the world to prevent a repeat of it. But these have focused on the firms that could become the next FTX and not necessarily the firms that could be affected by the next FTX.
This new development from the SEC shows that preventing more collateral damage due to exchange collapses is also important. Hopefully, this guide will help both investors and regulators find out about potential exposure on time and prevent even more people from losing their money after an industry giant falls.