Goldman Sachs is reportedly in discussions with the US crypto exchange FTX to integrate the derivative operations.
Barron’s report states that the multi-national investment giant aims at integrating derivatives trading services and FTX US. This will allow retail investors to trade a wider range of assets in a time when volumes are falling precipitously.
Goldman Sachs – FTX
FTX is in constant talks with the Securities and Exchange Commission and Commodity Futures Trading Commission as part of its expansion plans. Barron’s cited a ‘person with knowledge of the matter’ who said that the exchange was looking to rework the license issued by the CFTC. This will allow FTX to act as an intermediary in leveraged derivatives trading.
It will manage collateral and margin requirements normally handled by futures commission merchants (FCMs), such as Goldman Sachs, according to the exchange’s ambitious roadmap. FTX claims that the integrated model increases market stability and allows brokerages to free up capital for FCMs.
The exchange claimed that it holds customer collateral, calculates margin requirements, and liquidates positions automatically instead of waiting overnight. These procedures are tested in handling large trades and periods of extreme volatility. According to Brett Harrison, the president of FTX US, the “biggest FCMs” are reportedly open to the proposals made by FTX US.
“We already have several FCMs that are committed to technologically integrating with the exchange.” You can probably name several of the larger ones.”
Goldman Sachs is one of the futures merchants who are in talks with FTX. They want to offer a variety of services including rolling out clients, trading futures directly and acting as an on ramp to the exchange or capital topping-ups for clients.
FTX US currently has a valuation of $8 billion. It has sufficient cash flow and capital to support its operations. This makes it quite confident about its proposal. However, the CFTC may be a problem. The commodities watchdog noted that FCM’s transformation plans should be scrutinized. Congress also opposed the proposal, citing potential risks to brokerage industry.
Harrison believes the proposal will be beneficial to FCMs. However, it is not yet clear if regulatory agencies will alert Goldman and other Wall Street brokerages to integrate certain trading services into the exchange.
The Futures Industry Association, which represents Wall Street’s largest brokers, warned the CFTC about the potential risks associated with FTX’s plan. Although it is “innovative” as well as potentially “transformative,” it could pose significant risks. According to the trade group, it is worried about the automated system that could allow for market manipulation by threat actors. It added:
“This model could increase financial instability during times of increased market volatility.”
Marla Brooks – Financial Analysis
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