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Goldman Sachs and other Wall Street banks are in talks with crypto exchange FTX to integrate leveraged derivatives trading. Goldman Sachs’ collaboration with FTX will introduce several benefits including direct futures trading, introducing clients and acting as an on-ramp to the exchange, and providing capital top-ups for clients.
In fact, Goldman Sachs has been in discussion with crypto exchange FTX for potential collaborations. Also, Goldman CEO David Solomon and FTX CEO Sam Bankman-Fried recently discussed a role in a potential IPO, market-making in crypto trades, and helping FTX with regulations.
Goldman Sachs Commits Integrating Derivatives Trading with FTX
Leading investment bank Goldman Sachs seeks to integrate derivatives trading services with FTX as the crypto exchange expands into the traditional financial industry, reported Barron’s on June 1.
FTX is one of the largest crypto derivatives exchanges serving U.S. customers through its subsidiary FTX.US. With its ambition to offer crypto and other financial products through a single platform, FTX has been in continuous discussion with the SEC and the CFTC.
The exchange also wants to handle collateral and margin requirements, which are usually handled by brokerages, such as Goldman Sachs, which act as futures commission merchants or FCMs. FTX claims the integrated model improves market stability and frees up capital for brokerages acting as FCMs.
FTX argues the firm itself holds customer collateral and calculates margin requirements, liquidating positions automatically, rather than waiting overnight. These procedures have been tested for handling massive trades and in periods of extreme volatility.
Concerns Over FTX Integrated Derivatives Trading Proposal
The CFTC believes the FTX’s proposal to act as an FCM needs scrutiny. The proposal has been opposed by the U.S. Congress as it threatens the brokerage industry. Thus, even if Goldman or other Wall Street brokerages integrate some trading services with FTX, it’s unclear if regulators agree to it.
Moreover, the Futures Industry Association has pushback against the FTX proposal, claiming it can increase financial instability and market volatility.
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