When the Financial Times published a leaked copy of FTX’s balance sheet, the newspaper saw a financial hole. But regular readers of Risk.net will have noticed plenty of other danger signals.
Asset and liability underlyings were mismatched, with nearly $16 billion of unhedged market risk exposure. On-demand liabilities were financing illiquid trading assets, creating $7 billion of liquidity risk mismatch.
Segregation between client assets and house assets seemed to be entirely missing. And the reporting format looked like the product of a business studies undergraduate rather than that of a multi-billion-dollar enterprise with a million creditors, suggesting FTX’s finance…
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