In the next two weeks, the CBOE and CME will blaze the trail for institutional investors with the launch of Bitcoin futures trading on the markets.
It’s difficult to predict what will happen when the short-selling bears enter the market, but it seems as though some of the world’s biggest banks aren’t so keen on being held liable for the risk it entails.
Having received approval from the Commodity Futures Trading Commission, the two trading platforms will be the first to offer speculative options on the virtual currency. The Nasdaq is due to follow suit next year, with others planning their entry.
What is abundantly clear is that the big dogs of the banking and finance industry are watching very closely, as the Bitcoin market cap climbed past the $200 bln mark with its record $14,000 high late on Wednesday.
According to the Financial Times, a number of big banks are concerned about the launch of Bitcoin futures, citing extreme market volatility.
Lobby group, The Futures Industry Association, will lay a formal complaint this week, claiming the introduction of Bitcoin futures did not follow due process of public participation and transparency.
According to the lobby group’s letter published by FT, CBOE and CME agreed to operate under a self-certified regime and were given the go-ahead without regulators giving input.
Part of the letter cites serious financial risks for banks:
“These novel products does not align with the potential risks that underlie their trading and should be reviewed. It is also our understanding that not all risk committees of the relevant exchanges were consulted before the certification to launch these products.”
Big banks’ concerns
Simply put, futures traders could be at risk of a potential fallout, as they are liable to settle the risk should a contract go south.
The margin on a contract is managed by a clearing house, which is basically the middleman between the two parties of a future contract. If one of the parties defaults, the clearinghouse serves as the safety net.
The reason why some big banks are concerned is because they partially fund these clearinghouses - meaning they carry some of the risk associated with futures contracts.
Nevertheless, some brokers are ready to start trading next week. Wedbush Futures Head Bob Fitzsimmons says his customers come first.
“We could sit for hours and have a philosophical debate about Bitcoin and its legitimacy and uses, but our job is to service our customers.”