The collaboration between Goldman Sachs and FTX will provide several advantages, including direct futures trading, introducing clients and acting as an on-ramp to the exchange, and providing capital top-ups for clients.
Goldman Sachs and other Wall Street firms are in discussions with cryptocurrency exchange FTX about integrating leveraged derivatives trading. In addition, Goldman CEO David Solomon and FTX CEO Sam Bankman-Fried recently discussed a potential IPO role, market-making in crypto trades, and assisting FTX with regulations.
According to Barron’s, Goldman Sachs is looking to integrate derivatives trading services with FTX as the crypto exchange expands into the traditional financial industry.
Goldman Sachs Commits Integrating Derivatives Trading with FTX
FTX is one of the largest crypto derivatives exchanges, with its subsidiary FTX.US serving customers in the United States. To cryptocurrency and other financial products through a single platform, FTX has been in constant contact with the SEC and the CFTC.
The exchange also wishes to handle collateral and margin requirements, which are typically handled by brokerage firms such as Goldman Sachs, which act as futures commission merchants, or FCMs. The integrated model, according to FTX, improves market stability and frees up capital for brokerages acting as FCMs.
FTX claims that rather than waiting overnight, the firm holds customer collateral and calculates margin requirements, automatically liquidating positions. These procedures have been tested for handling large trades and extreme volatility.
Concerns Over FTX Integrated Derivatives Trading Proposal
The CFTC believes the FTX’s proposal to act as an FCM should be reviewed. The proposal has been opposed by the United States Congress because it poses a threat to the brokerage industry. As a result, even if Goldman or other Wall Street brokerages integrate some trading services with FTX, it remains unclear whether regulators will agree.
Furthermore, the Futures Industry Association has criticized the FTX proposal, claiming that it will increase financial instability and market volatility.