For the first time, crypto-market-specific disruptions will be included in contracts for the global derivatives industry, in a move aimed at broadening digital assets’ appeal to crypto-assets. institutional investors.
Isda, the derivatives trade association, said on Tuesday that it is developing common standards and regulatory frameworks for derivatives products linked to the $3 billion cryptocurrency market to solve the problem. resolve “potentially disruptive events”.
Potential issues that the London-based agency raises in the white paper include cyberattacks; fork, when a blockchain effectively splits into two forks; and airdrops, when the market is flooded with tokens, are usually free.
Isda master agreements are widely used as the legal framework for most of the world’s derivative transactions in bonds, stocks, currencies and other major assets. Market participants typically follow its guidance on how to adjust contract terms if an unexpected event disrupts a derivatives firm’s operations.
Scott O’Malia, chief executive officer of Isda, said standards and definitions for digital derivatives would be consistent with the underlying or spot market. “We must respect crypto assets as a single product class and draft legal definitions and terms accordingly,” he said.
The move comes as the crypto derivatives market skyrockets in value and workand products like bitcoin and ether futures on the Chicago Mercantile Exchange attract more users. Last month, the average open interest for bitcoin and ether futures contracts reached $4.3 billion and $1.2 billion respectively — the first time the exchange saw monthly open interest in ether. average over $1 billion, according to data from CryptoCompare. The derivatives market currently represents 55% of the total crypto market, it added.
As it grows, some of the biggest crypto market participants are stepping up lobbying by regulators to try to shape the rules.
Last week Coinbase, the crypto exchange and FTX.US, derivatives trading markets, both join Isda, a long-standing trade association whose members are mainly the world’s major wealth management and investment banks.
Kevin McPartland, head of market structure research at Coalition Greenwich, said: “Institutional market participants will be more willing and able to invest and trade in cryptocurrencies if the mechanisms are in place. doing so reflects current processes and standards.
If the cryptocurrency splits, market infrastructure providers such as trading venues, custodians and index providers may need to choose which fork of the asset to support, it said. Airdrops can have an impact on derivatives trading by causing an increase in the market value of digital assets derived from the beneficiary network, it said.
Isda has already begun work on refining its standards as traders and IT programmers explore opportunities to trade derivatives contracts governed by computer code. Earlier this year, they digitized a huge set of legal documents, their biggest overhaul since 2006.
FTX has also been pushing into regulated derivatives markets by buying LedgerX, a crypto futures contract and options exchange and clearing, for an undisclosed amount in October.