CME looks to expand its market maker incentive program for bitcoin futures

CME Group, the Chicago-based exchange operator, is looking to prolong an existing market maker incentive program for its bitcoin futures product – a notable move for one of the most well-known traditional financial services firms active in the space. 

The firm entered the market in 2017 with the launch of futures tied to bitcoin. The product has seen its daily volumes top $100 million every day since the beginning of the year, hitting a 2020 peak of $1.1 billion in volume on February 18, according to data provided by Skew.

On February 24, more than $400 million worth of its bitcoin futures traded hands. That figure dwarfs rival Bakkt, which traded $30 million of its physically-delivered futures product the same day.

As for the number of traders using the product, a spokesperson told The Block that the exchange had seen close to 4,000 unique accounts trade the product. In 2019, the firm signed up an additional 1,600 accounts. Since the beginning of 2020, the firm has added 300 new accounts. 

Large open interest holders, or traders who hold 25 bitcoin worth of futures, hit a record of 61 on February 18, according to a company spokesperson. 

The composition of CME's bitcoin futures market spans a range of firms, including crypto-native traders like Genesis Global Trading and Galaxy Digital, as well as traditional high-frequency trading firms like Jump Trading and Flow Traders. Indeed, it appears that CME is making a bid to further lure more participants to its marketplace. 

Earlier this month, the firm submitted an updated version of its bitcoin futures market-making program that would, if approved, expand the window of the program for traders to February 2021. It was set to expire at the end of this month. 

Filings tied to its request can be found here and here.

Incentive program

In any product, the role of a market maker is to plug into a market to buy or sell an asset at any time. Put more simply: provide liquidity in a reasonable size at any time during market hours. 

Still, while liquidity is an attractive element for a market, the move by CME may not have a noticeable impact on volumes. 

"It's kind of like a new department store loading up on inventory and does some robust window dressing," the trader said. "That doesn't necessarily get more people to buy things, but it may get more people to come inside and poke around which could lead to sales."

Bakkt submitted a rule change for its liquidity incentive program in October 2019. In November, a spokesman noted it would have a small impact on volumes. 

This post has been updated to correct the number of new accounts trading bitcoin futures since the beginning of 2020.