From Bloomberg, November 17:
Singapore Exchange Ltd. will soon launch Bitcoin and Ether perpetual futures, with plans to shake up the market for one of the most popular and controversial products in crypto.
Perps, as they’re known in industry parlance, are derivative contracts with no expiry date. They have become hugely popular for placing speculative crypto bets, and played an outsized role in an October digital-assets crash that wiped out at least $19 billion worth of futures, thanks in part to exchanges’ auto-deleveraging systems.
Read more: Crypto’s Biggest Crash Reveals a Market Littered With Pitfalls
Traders in SGX’s perpetual futures — which are slated to go live on November 24 — won’t automatically get liquidated if a sudden market shift upsets their positions. Instead, the tried-and-tested system of margin calls and top-up collateral payments used by traditional exchanges will be deployed.
“The challenge that repeatedly faces a lot of the guys who are trading on the unregulated exchanges is that clearing doesn’t work the way they expect it to,” Michael Syn, SGX’s president, said in an interview.
Syn likened offshore crypto exchanges to “bucket shops,” a type of bookmaker banned in the US in the 1920s that would take bets on share price moves. Crypto exchanges’ methods don’t “meet the needs of an institution,” he said, citing a lack of transparency over the price at which trades are liquidated and the presence, in some cases, of in-house market makers.
“You don’t know if the exchange involved liquidated against a fair third-party, or against the in-house market maker.”
To mitigate those concerns, SGX handles margin through clearing members, similar to what are known as Futures Commission Merchants (FCMs) in the US.
These intermediaries are on the hook if a clearing house demands more margin. If a client can’t pay, that’s the broker’s problem, but they need to make the clearing house whole whatever happens....
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