FTX and Goldman Sachs reportedly in talks over derivatives trading

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According to a report from Barron’s,  Goldman Sachs is discussing with leading crypto exchange FTX to add some of its derivatives business into its operation.

Per the report, Goldman Sachs wants FTX to integrate some aspects of their derivatives businesses, such as trading futures directly, providing capital top-up, acting as an on-ramp to the exchange, and introducing new clients.

FTX is one of the fastest-growing crypto exchanges globally and operates in the US through FTX.US. But the company is also looking to offer more than crypto trading and recently bought a US-regulated derivatives exchange.

The firm is currently seeking to modify its license to be a hybrid of exchange and a brokerage which would allow it to facilitate leveraged derivatives trades between counterparties. The Commodity Futures Trading Commission (CFTC) will have to grant it a license for this modification to happen.

If this happens, FTX will be able to serve as a futures commission merchant (FCM), a role traditionally meant for financial institutions like Goldman Sachs. 

According to the president of FTX.US, Brett Harrison, major FCMs are open to the exchange’s proposal.

“We have multiple FCMs already committed to integrating technologically with the exchange… There are several large ones you can probably name.”

FTX proposal faces scrutiny

It will take more than collaborations with Goldman Sachs or Wall Street brokerages to make FTX an FCM. Regulators are skeptical of this proposition, and there has been significant opposition from other fronts.

The CFTC has said the application requires scrutiny, and the US Congress has held sessions on the matter. But the strongest opposition is coming from the body representing brokerages and other firms involved in derivatives – Futures Industry Association.

The association wrote to the CFTC claiming that the proposal is risky and could worsen “financial instability in a time of heightened market volatility.” FTX has denied this claim saying that its integrated model will improve market stability.

Wall Street banks are increasingly pro-crypto

Major banks like Goldman Sachs, Morgan Stanley, and JP Morgan Chase have ramped up their crypto involvement with several initiatives in recent months. 

Goldman Sachs partnered with Mike Novogratz Galaxy Digital to offer over-the-counter crypto trading. It has also been trading exchange-based CME Group Bitcoin products since last year.

Others like Morgan Stanley and JPMorgan Chase also offer their clients exposure to Bitcoin and have made several investments and partnerships in the crypto space.