Wall Street brokers question FTX futures trading plan

A trading group that represents some of the largest brokers in Wall Street has warned the US supervisory authorities that a proposal of the FTX cryptocurrency exchange for automation of the risk management on the lifted appointment market is not sufficiently detailed in order to be approved in its current form and could prove to be annoying.

The FTX plan has caused a stir in the financial world and increased the prospect that trade approaches that are developed on the cryptoma markets will be used in the traditional financial world if the Commodity Futures Trading Commission, a US regulatory authority for derivatives, gives their consent.

The reaction of Wall Street was eagerly awaited, since FTX asked for permission to use computers to carry out functions on the appointment markets, which are now entrusted to brokers, which are called the futures commission dealers, of which the largest branches of JPMorgan Chase and Goldman are.

The Futures Industry Association that market participants represented, including FCMS, asked CFTC to obtain additional information on Wednesday before deciding on the FTX plan, and described it as "innovative" and possibly "transformative", but potentially risky.

"This model could tighten the financial instability in times of increased market volatility," said the FIA, adding that it was worried that the automated "market manipulations" could invite bad actors.

The CFTC set a deadline for comments on the FTX proposal, which has come across mixed reactions, May 11th. Terry Duffy, CEO of the Appointment Exchange Operator CME Group, called it a "blatantly defective" idea that "a significant risk of market stability and market participants". In view of the importance of problems raised by FTX, other respondents suggested that the CFTC would be better off to write new regulations.

As a sign of the upcoming debate, a committee of the House of Representatives will hold a hearing on the plan on Thursday, whereby Duffy and FTX boss Sam Bankman-Fried will be among the planned witnesses.

Technically speaking, FTX tries to include CFTC approval for a small US futures exchange that she bought last year to offer leveraged futures contracts that enable investors to enter into large positions and at the same time to spend a fraction of the value of a trade, known as margin.

Collect FCMS Margin in today's markets and ensure that customers have enough of it to support positions. If this is not the case, the brokers demand more money, usually overnight. They also contribute to guarantee funds that are held in clearing points - the third parties between buyers and sellers of futures - to "compensate for losses in the event of a greater default of payment.

ftx would bypass the brokers and use a system that is currently being used in crypto. It would require customers to deposit collateral on FTX accounts and to be responsible for having enough to cover the margin requirements that would be calculated every 30 seconds every day of the year.

If the margin becomes too low, automatic liquidation would begin, with FTX initially selling positions in 10 percent steps. In the worst case, positions from "backstop liquidity providers" would be taken over, which had previously been agreed to take on such a role. FTX would also deposit $ 250 million in a guarantee fund.

Although the FTX exchange only deals with digital assets, the approval of your proposal could pave the way for the use of your approach for other appointment imaging.

The FIA ​​argued that important details of the FTX plan remained unclear-from the reliability of the algorithms, which he uses to calculate margin requirements, to the requirements for "baking stop liquidity providers". It was asked what would happen in the event of a “Fat finger” error by a market participant or if FTX would go bankrupt himself.

The trade association also advocated human interference in the markets. FCMS not only deal with margins, they also try to ensure that customers have sufficient resources to act, and they pay attention to money laundering activities.

Automated liquidations could make a bad situation worse, said the FIA. "During market turbulence, the immediate liquidation of a large participant during the cascading markets.

to request from the market participants to manage accounts around the clock would be impractical outside the crypto area, it said, and would inappropriately burden investors who use money paid in banks.

"In order to meet a Margin Call in Fiat currency, the banks must be open, regardless of the fact that the market is open around the clock," said the FIA. "This is not the world in which we live today."