Derivatives Experts See FTX’s Clearing Proposal Potential, but Remain Critical
- They pointed out several shortcomings of the proposed model.
- The proposal is now pending the consideration of the CFTC.
The proposal of FTX to bring changes to the existing derivatives clearing model remains to be a hot topic of discussion among derivatives experts. Though the majority of the industry agreed on the potential of such reforms in the post-trade market structure, they unequivocally remained skeptical of FTX’s plans.
FTX, which operates a crypto exchange, suggested an auto-liquidation mechanism that would close out clients' positions if the margin falls below a pre-determined threshold.
“Auto-liquidation, or any type of liquidation, comes with significant responsibility, and there needs to be a certain amount of judgment that's used in exercising that,” Alicia Crighton, the Co-Head of Global Futures at Goldman Sachs, said in a panel discussion at FIA’s IDX. “While auto-liquidation is compelling when we think of risk and volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders
Read this Term in the system, it is not the right answer in all instances and circumstances.”
In addition, he pointed out the lack of transparency in the proposed model.
Only for Crypto?
FTX only proposed the changes in the clearing
Clearing
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Read this Term mechanisms for cryptocurrency futures and options, but the derivatives industry players believe that it will reach all other asset classes.
“I think [the FTX proposal] will help us to evolve the model. The model should evolve, but I do think where we probably end up is in some sort of a hybrid structure,” Crighton added. “We have to be cautious about how we do it, but I do think there is space for a hybrid model.”
Also, FTX’s proposed model received criticism from the US Futures Industry Association (FIA), which wrote long critical feedback to the Commodity Futures Trading Commission (CFTC).
But, auto-liquidation is not the only concern of the derivative experts. They are also worried about the direct clearing approach.
If implemented, it would end the role of futures commission merchants (FCMs), which are responsible for collecting margins and ensuring the availability of enough margins for holding the positions.
“We face clients, we face CCPs, but altogether we do so much more for clients, from our capacity to analyze the credit risk of all our clients to accompanying our clients day to day with their level of risk, proposing potential margin financing, cross-margining and optimization. All those kinds of things that these kinds of companies cannot offer,” said Maylis Dubarry, the Global Co-Head of Prime Services at Société Générale.
The proposal of FTX to bring changes to the existing derivatives clearing model remains to be a hot topic of discussion among derivatives experts. Though the majority of the industry agreed on the potential of such reforms in the post-trade market structure, they unequivocally remained skeptical of FTX’s plans.
FTX, which operates a crypto exchange, suggested an auto-liquidation mechanism that would close out clients' positions if the margin falls below a pre-determined threshold.
“Auto-liquidation, or any type of liquidation, comes with significant responsibility, and there needs to be a certain amount of judgment that's used in exercising that,” Alicia Crighton, the Co-Head of Global Futures at Goldman Sachs, said in a panel discussion at FIA’s IDX. “While auto-liquidation is compelling when we think of risk and volatility
Volatility
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders
In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders
Read this Term in the system, it is not the right answer in all instances and circumstances.”
In addition, he pointed out the lack of transparency in the proposed model.
Only for Crypto?
FTX only proposed the changes in the clearing
Clearing
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Clearing is a general term that simply means many different things depending on the subject and related industry. Most commonly, this refers to the reciprocal exchange between banks of checks and drafts, and the settlement of the differences, or the total of claims settled at a clearinghouse. In finance and banking, the word clearing has different meanings depending on the more specific business model. Moving checks from the bank where they were deposited to the bank on which they were drawn. Th
Read this Term mechanisms for cryptocurrency futures and options, but the derivatives industry players believe that it will reach all other asset classes.
“I think [the FTX proposal] will help us to evolve the model. The model should evolve, but I do think where we probably end up is in some sort of a hybrid structure,” Crighton added. “We have to be cautious about how we do it, but I do think there is space for a hybrid model.”
Also, FTX’s proposed model received criticism from the US Futures Industry Association (FIA), which wrote long critical feedback to the Commodity Futures Trading Commission (CFTC).
But, auto-liquidation is not the only concern of the derivative experts. They are also worried about the direct clearing approach.
If implemented, it would end the role of futures commission merchants (FCMs), which are responsible for collecting margins and ensuring the availability of enough margins for holding the positions.
“We face clients, we face CCPs, but altogether we do so much more for clients, from our capacity to analyze the credit risk of all our clients to accompanying our clients day to day with their level of risk, proposing potential margin financing, cross-margining and optimization. All those kinds of things that these kinds of companies cannot offer,” said Maylis Dubarry, the Global Co-Head of Prime Services at Société Générale.