FTX loses financial services licence access in South Africa

South African cryptocurrency market maker Ovex has cancelled and removed FTX as a juristic representative, cutting off the international exchange’s access to its local Financial Service Provider (FSP) licence.

“FTX is now unlicensed to market its services in South Africa,” Ovex community manager Nick Bergonzoli told MyBroadband.

“People should avoid using FTX.”

FTX is a cryptocurrency exchange founded by Sam Bankman-Fried in 2019, which filed for Chapter 11 bankruptcy in the United States last week.

Bankman-Fried had built a reputation in the industry as a wunderkind with his wildly successful quantitive cryptocurrency trading firm Alameda Research.

However, his companies ran into a liquidity crunch thanks to a bank run on FTX and the collapse of its cryptocurrency token FTT.

The bank run was fuelled by speculation that FTX was insolvent and gained steam after a Coindesk article, published on 2 November, revealed that a substantial chunk of Alameda’s assets was FTT.

Based on the report, almost 40% of the assets on Alameda’s books was a token sister company FTX printed.

Alameda Research CEO Caroline Ellison tried to address concerns about Alameda’s balance sheet on Twitter, but effectively confirmed that — at best — 20% of their assets were FTT.

Cofounder and CEO of rival exchange Binance, Changpeng “CZ” Zhao, tweeted on 6 November that they would liquidate their whole stack of FTT — worth $585 million at the time.

This tanked the FTT price and kicked off the bank run on FTX in all earnest.

Changpeng Zhao “CZ”, Binance cofounder and CEO (left) and Sam Bankman-Fried “SBF”, FTX founder and CEO (right), shaking hands in happier times

On 8 November, the two titans shocked the market by announcing that FTX had Binance for a bailout.

Binance said it would buy FTX’s non-US exchange, provided it passed due diligence.

Within 24 hours, Binance announced it was backing out of the deal.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said.

On 11 November, Bankman-Fried confirmed FTX had applied for Chapter 11 bankruptcy.

In the US, Chapter 11 is not necessarily a total liquidation and resembles South Africa’s business rescue proceedings.

According to the US government: “This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.”

How FTX is connected to South Africa

FTX and Alameda Research invested in cryptocurrency and blockchain businesses around the world, including several exchanges in South Africa.

These include VALR, the largest exchange headquartered in Africa, and Ovex, a market maker that reports trading volumes of over $500 million (R8.6 billion) per month.

VALR raised $50 million (R863 million) in a Series B funding round led by Pantera Capital, with help from Alameda Research, Cadenza, Coinbase Ventures, and Avon Ventures.

VALR founder and CEO Farzam Ehsani has assured that this is not a risk and that they have no exposure to FTX or FTT.

“If you own Apple shares, and then you die, it doesn’t affect Apple. Same story for VALR,” Ehsani stated.

Farzam Ehsani, VALR co-founder and CEO

FTX bought a stake in Ovex in April 2021.

Ovex CEO Jonathan Ovadia told MyBroadband last week that FTX owns a minority stake of around 8% and that they are in discussions to buy the equity back.

He also assured that they have no exposure to FTT, and moved any operations they had on the exchange off by 7 November.

Ovex said on Wednesday, 16 November, that it terminated its relationship with FTX in the lead-up to the bankruptcy proceedings.

“FTX’s authority to market and make available its offshore derivatives products in South Africa was withdrawn, effective 9 November 2022,” stated Ovex.

“FTX’s marketing activities in South Africa had in the past been regularised through its appointment as juristic representative of Ovex Fsp (Pty) Ltd, FSP no. 50776.”

Jonathan Ovadia, Ovex CEO.

Ovex had granted FTX the ability to offer its margin trading products using its FSP licence after the Finance Sector Conduct Authority (FSCA) cracked down on several large exchanges in 2021.

These included Binance, FTX, and ByBit — all large exchanges by trading volume.

Binance cut off margin trading in South Africa on 8 October 2021, only relaunching in September 2022 through a partnership with Fivewest OTC Desk.

With Ovex’s help, FTX was able to continue offering its margin trading services to South African users.

This authority has now been withdrawn.

“The public is cautioned from doing further business with FTX, as FTX is not permitted to market its offshore derivatives products in South Africa, at this time,” said Ovex.

Now read: Police interview FTX founder as R11 billion mysteriously leaves crypto exchange

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FTX loses financial services licence access in South Africa