Goldman Sachs is reportedly in talks with the US arm of crypto exchange FTX for potential integration of the latter’s derivative operations.
According to Barron’s report, the multinational investment giant aims to integrate derivatives trading services with FTX US, which has been now pushing into stocks, to enable retail investors to trade a more diverse array of assets at a time when volumes have fallen precipitously.
Goldman Sachs – FTX
FTX has been engaged in continuous talks with both – the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) as part of its expansion plans. In fact, Barron’s cited a ‘person familiar with the matter’ that the exchange is eyeing to revamp the license from the CFTC. It will enable FTX to serve as an intermediary for leveraged derivatives trading.
The exchange’s ambitious roadmap includes managing collateral and margin requirements usually handled by brokerages that act as futures commission merchants (FCMs), including Goldman Sachs. FTX claims the integrated model improves market stability and frees up capital for brokerages operating as FCMs.
The exchange argued that it holds customer collateral and calculates margin requirements, liquidating positions automatically rather than waiting overnight. These procedures have been tested for handling massive trades and in periods of extreme volatility. The “biggest FCMs” are reportedly warming up to the proposals presented by FTX US, as per the exchange’s President, Brett Harrison, who went on to add,
“We have multiple FCMs already committed to integrating technologically with the exchange. There are several large ones you can probably name.”
Goldman Sachs, which happens to be one of the futures commission merchants in talks with FTX, is looking to offer several services, including trading futures directly, rolling out clients and acting as an on-ramp to the exchange, or offering capital top-ups for clients.
Objections
FTX US, which currently sits at the valuation of $8 billion, with proper cash flow and abundant capital to back its operations, is fairly confident in its proposal. The CFTC, however, may pose a hindrance. The commodities watchdog had remarked that the exchange’s plans to transform into FCM warrant scrutiny. The proposal also garnered opposition from Congress, which cited potential risks to the brokerage industry.
Even as Harrison believes that the proposal will benefit FCMs, it is still not clear if the regulatory agencies will give a heads up to Goldman or other Wall Street brokerages, for that matter, to integrate certain trading services with the exchange.
Besides, the Futures Industry Association, which represents some of Wall Street’s biggest brokers, has warned the CFTC that FTX’s plan, though “innovative” and possibly “transformative,” can bring about significant risks. The trade group has said that it is concerned about the automated system, which can open doors for potential “market manipulation” by threat actors. It also added,
“This model could exacerbate financial instability in a time of heightened market volatility.”