CME’s Vicioso says regulated market is crypto differentiator

Giovanni Vicioso, global head of cryptocurrency products at CME Group, said a differentiator for the company is that it is a regulated market offering regulated products that provide transparency and price discovery, so that clients can effectively transfer risk.

Giovanni Vicioso, CME Group

Vicioso told Markets Media: “We are one of the largest derivatives exchanges in the world with a proven track record of over 175 years, and that sets us apart from unregulated platforms, some of which have only been around for less than a decade. ‘a decade.”

On November 11, Bahamian-regulated crypto exchange FTX Group filed for bankruptcy protection. In 2021, FTX purchased LedgerX, a CFTC-regulated designated contracts marketplace, swap execution facility and derivatives clearing organization, and rebranded the business as FTX US Derivatives, although that business would not was not included in the Chapter 11 filing.

FTX had filed an application with the Commodity Futures Trading Commission to introduce a no-broker clearing model for crypto derivatives. Terrence Duffy, President and CEO of CME Group, had opposed the proposal and said it would represent a radical change in the market structure of the derivatives industry and would set a precedent with negative implications. far-reaching for the safety and soundness of US financial markets. markets.

“CME Group is a clearinghouse so we can guarantee the clearing and settlement of trades on our exchange and you will never hear us use the term automatic liquidation or clawback,” Vicioso said.

Volume growth

Following FTX’s collapse, CME saw a lot of participation as clients worked to manage their risk amid the volatility according to Vicioso. “There were records in bitcoin futures and ether futures and options, as well as an overall daily record of 207,000 complex crypto contracts,” he added.

On November 8, the entire crypto suite had a record trading volume of 207,205 contracts.

Vicioso continued that CME’s suite of cryptocurrency products has continued to see steady growth in volume and open interest despite the challenging backdrop the broader cryptocurrency market has faced in recent months. In addition, institutional participation increased by more than 30% in large bitcoin futures open interest holders in the third quarter compared to the same period in 2021.

“This is particularly noteworthy because these types of entities hold 25 or more of our bitcoin contracts, which equates to at least 125 bitcoins, worth approximately $2 million at current market prices,” he said. -he declares. “Our transparent rules and regulations, operational controls, and very robust liquidity continue to allow clients to protect themselves against fluctuations in bitcoin and ether prices.”

Clients already trading CME Group products can easily add bitcoin futures or ether futures, so it’s more of a plug and play into their existing strategies.

Vicioso has had a baptism of fire since being appointed to his current role in October. He joined CME Group in 2012 as Senior Director of Equity Products, where he began his involvement in the cryptocurrency industry while also working in alternative investments.

“The latter allowed me to explore the potential of futures and index products in new assets, including commodities, real estate, water and cryptocurrencies,” he added. .

The group introduced the CME CF Bitcoin Benchmark in November 2016 and as client demand grew for a cash-settled futures product, and CME bitcoin futures in December 2017. He described bitcoin futures as a huge success with a compound annual growth rate of around 70% and an average daily volume of over 13,500 contracts.

Institutions are turning to bitcoin first, and as they become comfortable, they are quickly looking to migrate to ether. CME introduced an ether benchmark in 2018, followed by futures in February 2021.

“The number of large open interest holders, who hold at least 25 ether futures, has grown to 50 in less than a year, while bitcoin futures have taken over two years” , added Vicioso. “So institutions adapt more quickly.”

When the price of cryptocurrencies rose last year, CME introduced micro-contracts which helped the exchange capture the interest of retailers. However, institutions also use micro-contracts to test new strategies or refine their risk exposure and management needs.

Some clients would like to pay margin for crypto futures in crypto. Vicioso said, “It’s something we’re exploring but is still in the early stages of development and will take some time.”

In addition to launching tradable products, CME also introduced 14 additional benchmark rates and real-time indices this year.

“Our suite of non-tradable benchmark rates provides reliable price discovery on a regulated venue in a fragmented market that builds comfort among market participants for tradable products,” Vicioso added.

Banks are also clearing more CME crypto products and starting to trade the contracts to hedge OTC trades that serve their hedge fund clients.

“We will continue to build our dominance in bitcoin and ether contracts where we have market leading volumes and open interest and we have introduced non-tradable benchmarks including tradable futures and options. in bitcoin and ether, every month since December. last year,” he said. “We will continue this pace of innovation and product introductions.”

Almost half, between 40% and 45% of CME’s crypto volume comes from outside the North American region. The crypto trades 24 hours a day and CME is open from 6 p.m. ET Sunday evening to 5 p.m. Friday evening ET with a one-hour maintenance window daily between 5 p.m. and 6 p.m.

CME also introduced benchmark rates for the US dollar price of bitcoin and ether at 4 p.m. New York time in addition to London time. One mechanism, known as Basis Trade at Index Close (BTIC), allows market participants to trade bitcoin and ether futures against either of these benchmark rates.

Vicioso added that, as always, additional futures will be driven by customer demand, but also by greater regulatory clarity.

“We have single coin indices, but there is interest in a basket of cryptocurrencies, so it’s on our radar,” he said.

About Mildred B.

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