The Wall Street giant Goldman Sachs is currently in talks with the crypto exchange platform FTX to integrate some aspects of its derivatives trading business.
FTX is currently seeking a license amendment from the Commodity Futures Trading Commission (CFTC).
This amendment will allow the platform to act as both an exchange and middleman between counterparties in leveraged derivatives trades – collateral and margin when borrowed money is in circulation.
This role of the middleman is currently performed by brokerage firms such as Goldman Sachs, which are known as “Future Commission Merchant”, or FCM.
Brett Harrison, president of FTX.US said, “We already have several FCMs committed to technically integrating with the exchange.”
According to a source, Goldman Sachs is one of the FCM’s which is in talks with FTX.
Commitments to integrate with FTX could include trading futures directly, introducing clients and acting as an on-ramp to the exchange, or providing capital top-ups for clients, said another source.
Although Congress has already heard FTX’s proposal to act as an FCM, CTFC has said that this matter is subject to investigation.
FTX’ proposal is a threat to brokerages, which are represented by the Futures Industry Association. The association pushed back by saying that FTX’s proposal is potentially risky and wrote a letter to the CFTC.
The association believes that acceptance of this proposal can lead to “intensifying financial volatility in times of market volatility.”
However, FTX believes the opposite. The platform says that its integrated model will only lead to greater market stability. The firm itself will hold the clients collateral and calculate margin requirement every 30 seconds.
This will lead to automatically liquidating positions as necessary, rather than waiting overnight, which happens in the case of brokerages.
Harrison said the integrated model of FTX would free up capital for brokerages to act as FCM and thus generate more revenue. He truly believes this model will benefit the FCM’s saying, “We are going to give them a great opportunity to have a profitable futures trade.”
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