Some of the world's biggest derivatives brokerages criticized plans to offer bitcoin futures and options on U.S. exchanges, telling regulators that the contracts have been rushed to market without proper consideration of the risks.
The Futures Industry Association, whose members include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., detailed its concerns in a letter to the Commodity Futures Trading Commission on Wednesday. The association said there should have been more discussion about margin levels, trading limits, stress tests and clearing before the contracts were given a green light.
CME Group Inc. and Cboe Global Markets Inc. were the first bourses to approve bitcoin derivatives, paving the way for mainstream investors to participate in a volatile and largely unregulated market that some have called a bubble. Cboe will start trading futures on Dec. 10, while CME's contracts are set to debut on Dec. 18. The exchanges were allowed to offer the products after pledging to regulators that they comply with the law, and the contracts will be subject to CFTC oversight.
"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, signed by the organization's Chief Executive Officer Walt Lukken. "The recent volatility in these markets has underscored the importance of setting these levels and processes appropriately and conservatively."
Bitcoin has surged more than 1,400 per cent this year, partly on expectations that new derivatives products will boost demand. But the cryptocurrency has also seen some dramatic swings, plunging nearly 20 per cent in less than 90 minutes on Nov. 29. Some of the venues on which it trades have suffered outages and hacks.
"We remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based and whether exchanges have the proper oversight to ensure the reference products are not susceptible to manipulation, fraud, and operational risk," the FIA said.
Clearing members are not obliged to offer services for bitcoin products, regardless of the exchange's actions.