Put Cryptos in the Isolation Room Urges Interactive Brokers

Recently I wrote about the CME Group’s plans to start trading in bitcoin futures. Now clearing houses are voicing their concerns as electronic brokerage firm Interactive Brokers has taken a stand against bitcoin futures contracts.

On November 14, 2017, Thomas Peterffy, Chairman of Interactive Brokers wrote to J. Christopher Giancarlo Chairman, Commodity Futures Trading Commission about what it sees as the dangers of bitcoin futures trading.

In the letter, Peterffy warns that the CME could easily become overwhelmed if an exchange-cleared cryptocurrency suffered a rapid, significant price drop.

Peterffy’s suggestion is to sequester clearing cryptocurrencies and their derivatives in a wholly separate clearing system.

“If the Chicago Mercantile Exchange or any other clearing organization clears a cryptocurrency together with other products, then a large cryptocurrency price move that destabilizes members that clear cryptocurrencies will destabilize the clearing organization itself and its ability to satisfy its fundamental obligation to pay the winners and collect from the losers on the other products in the same clearing pool,” Peterffy warned.

Peterffy went on to posit that this danger was not just limited to financially damaging the exchange, but could harm the broader economy as well.

Continuing, he warned that “Unless the risk of clearing cryptocurrency is isolated and segregated from other products, a catastrophe in the cryptocurrency market that destabilizes a clearing organization will destabilize the real economy, as critical equity index and commodity markets cleared in the same clearing organization become infected.”

Finally, Peterffy concluded that "The only way to protect clearing organizations and their members (and the financial system as a whole) from the unique risks inherent in clearing cryptocurrencies is to require that they be cleared in a separate clearing system, isolated from other products."

As cryptocurrencies work their way into the mainstream, we will continue to see friction between those who want to include cryptocurrencies in their offerings and those who consider it to dangerous.