HONG KONG • Some of the world's biggest derivatives brokerages criticised plans by United States exchanges to offer bitcoin futures and options, saying the contracts have been rushed to market without proper consideration of the risks.
The brokerages who laid out their concerns in an open letter via the Futures Industry Association (FIA) on Wednesday said exchanges failed to get enough feedback from market participants on margin levels, trading limits, stress tests and clearing. Highlighting bitcoin's elevated volatility and reliance on unregulated venues for pricing, they questioned whether exchanges had the tools to prevent manipulation.
Misgivings among the FIA's members, who include Goldman Sachs Group and JPMorgan Chase & Co, underscore the controversy surrounding bitcoin as it moves from the fringes of finance towards the mainstream.
CME Group and Cboe Global Markets both used an expedited self-certification process to approve the listing of bitcoin futures, hoping to tap investor demand after the cryptocurrency's more than 1,400 per cent rally this year.
"A more thorough and considered process would have allowed for a robust public discussion among clearing member firms, exchanges and clearinghouses," the FIA said in its letter, which was addressed to the Commodity Futures Trading Commission (CFTC) and signed by FIA chief executive officer Walt Lukken.
While the letter is unlikely to change the exchanges' plans, it raises questions about how many brokerages will participate once bitcoin derivatives start trading later this month.
Some dealers, particularly the so-called clearing members required to stand behind client trades, are concerned about their exposure if the cryptocurrency's extreme volatility leads to trader defaults.
There should have been a public discussion about whether a separate guarantee fund - used to limit the impact of defaults - was warranted for the new contracts, the FIA said.
The exchanges were allowed to offer bitcoin products after pledging to regulators that they comply with the law. Cboe will start trading futures on Dec 10 while CME's contracts are set to debut on Dec 18. The products will be subject to CFTC oversight.