According to a report published by Barron’s on June 1, Goldman Sachs is looking to incorporate derivatives trading services with FTX as the crypto exchange grows into the conventional financial industry.
Goldman Sachs pledged to integrate derivatives trading with FTX
Goldman Sachs and other Wall Street firms are in discussions with cryptocurrency exchange FTX about integrating leveraged derivatives trading. The relationship between Goldman Sachs and FTX will provide various advantages, including direct futures trading, introducing clients and acting as an on-ramp to the exchange, and enabling capital top-ups for clients.
Goldman Sachs has been in communication with cryptocurrency exchange FTX about possible cooperation. In addition, Goldman CEO David Solomon and FTX CEO Sam Bankman-Fried recently discussed a possible IPO role, market-making in crypto transactions, and assisting FTX with regulations.
FTX is one of the major crypto derivatives exchanges, including its subsidiary FTX.US offering US consumers. With the goal of offering crypto and other financial derivatives through a common platform, FTX has been in frequent touch with the SEC (U.S. Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission).
The exchange also wishes to manage collateral and margin needs, which are typically handled by brokerage firms such as Goldman Sachs, that serve as FCMs or futures commission merchants. The integrated methodology, according to FTX, increases market stability and liberates up capital for brokerages functioning as FCMs.
FTX claims that it keeps client collateral and determines margin needs, liquidating positions automatically instead of waiting. These processes have been tested for managing large trades and during instances of significant volatility.
Concerns about the FTX Integrated Derivatives trading plan
The CFTC considers the FTX’s proposal to function as an FCM requires further investigation. The plan has been rejected by the United States Congress because it poses a threat to the brokerage sector. As a result, although if Goldman or other Wall Street brokerages merge some trading services with FTX, authorities may not agree.
Furthermore, the Futures Industry Association has criticised the FTX plan, stating that it will promote financial instability and price fluctuations.
