Markets

Options Contracts Required in Crypto Markets

Published

on

Arnab Sen, chief executive and co-founder of GFO-X, a UK-based digital asset derivatives trading platform, said large institutions need derivatives, and especially options, on a regulated platform to have confidence in entry. in the crypto market.

Sen spoke on a panel at the FIA ​​IDX conference on June 18 in London. In April last year, GFO-X announced a strategic partnership with LCH SA, the European clearing house of the London Stock Exchange Group, to launch a segregated central counterparty clearing service, subject to regulatory approval.

Arnab Sen, GFO-X

“We are solving for a fully regulated institutional-grade venue for crypto that is connected to traditional market infrastructure,” he added. “You can’t act quickly and break things in a regulated financial market.”

He continued that an asset class does not mature until it has three components – cash, futures and options. Options account for 65% of derivatives volumes, according to the FIA, while Sen highlighted that Ether trades less than $3 billion worth of options. Furthermore, Sen argued that the biggest problem in crypto currently is credit, so options are needed to smooth out volatility.

Sen said, “Why wouldn’t you want to extract that volatility? The curve is very short in crypto, up to six months, but increasing it to three years allows for structured products for private banks and large institutions.”

However, Sen continued that options resolution involves overcoming multiple challenges, including counterparty risk, the technological hurdle that is higher than for futures, and a stable architecture.

In April this year, LCH SA received regulatory approval to clear Bitcoin index derivatives through its new LCH DigitalAssetClear service for cash-settled Bitcoin index futures and options contracts traded on GFO-X. LCH SA plans to launch the clearing service this year. Corentine Poilvet-Clédière, chief executive of LCH SA, said in a statement at the time that LCH SA is excited to work with GFO-X, together with the industry, to provide a regulated market for this asset class.

Marcus Robinson, the new head of LCH CDSClear and head of LCH DigitalAssetClear at LSEG Post Trade, said on the IDX panel: “We are a highly regulated central counterparty and can increase confidence in the underlying asset class for institutional investors through risk mitigation . We can eliminate some of the underlying counterparty, contagion and operational risks that persist in the bilateral world today.”

Robinson continued that LCH wanted to seize the opportunity to enter a new asset class, especially as crypto is transitioning from a retail-oriented market to an institutional market, and created a working group to test demand.

Marcus Robinson, LCH

“We have robust risk and margin management processes that are tried and tested and trusted by regulators and the user community,” Robinson added.

He used the analogy of over-the-counter derivatives that made a widespread shift to central clearing after the 2008 financial crisis. Bringing OTC markets into a cleared, regulated, and trusted world created more trust, according to Robinson, and the markets have grown.

“We are looking to create an infrastructure that is similar to how traditional derivatives markets operate today in terms of trading and clearing,” he added.

Collateral will be segregated and protected specifically for LCH DigitalAssetClear to prevent contagion. LCH DigitalAssetClear is underpinned by a segregated default fund, customized risk management model and dedicated set of netting rules.

Source

Leave a Reply

Your email address will not be published. Required fields are marked *

Información básica sobre protección de datos Ver más

  • Responsable: Miguel Mamador.
  • Finalidad:  Moderar los comentarios.
  • Legitimación:  Por consentimiento del interesado.
  • Destinatarios y encargados de tratamiento:  No se ceden o comunican datos a terceros para prestar este servicio. El Titular ha contratado los servicios de alojamiento web a Banahosting que actúa como encargado de tratamiento.
  • Derechos: Acceder, rectificar y suprimir los datos.
  • Información Adicional: Puede consultar la información detallada en la Política de Privacidad.

Trending

Exit mobile version