FIA Boca — one of the largest institutional derivatives get-togethers — felt very different this year.
Not just because it was the first year since the onset of the pandemic that participants across the trading and exchange world descended upon Boca for the more than 40-years-old industry assemblage in Boca Raton Florida. It's also not because the venue — the ornate, sprawling Boca Raton resort — was under construction (although that was a jarring experience for most guests).
Rather, it was the crypto industry members running around amidst the more than one thousand representatives from the creme-de-la-creme of institutional derivatives that raised the most eyebrows. And questions surrounding a specific proposal by FTX served as a microcosm of that clash.
"These guys are running around in T-shirts," said one executive at a large traditional trading firm, referring to the increased crypto presence at this year's event. FIA, which runs the conferences, suggested business casual attire in an alert ahead of the first day of the conference.
The exec continued: "It reminds me of the dot com bubble when internet guys took over conferences."
The presence of crypto firms was not just evident in their more casual habiliments but also in the fact that this year's platinum sponsors were composed of a number of crypto firms for the first time in the event's history. Pyth, Jump Crypto, Coinbase, and FTX were among the top sponsors of the event. The latter two firms sponsored the event's two late-night events.
Unlike previous years — during which top executives flocked to listen to Intercontinental Exchange's Jeff Sprecher or Nasdaq's Adena Friedman wax poetic about market structure — suits and ties lined up to speak with FTX's billionaire Sam Bankman-Fried, who closed the event with a one-on-one conversation with baseball legend Alex Rodriguez.
"This is basically a crypto conference," lamented one long-time participant. Coinbase, for its part, revealed the rebrand of derivatives platform FairX to Coinbase Derivatives, as well as its broader strategy on this front. Companies like Jump evangelized their own crypto projects such as Pyth, the Solana-based data project.
Others suggested that the shifting demographic isn't exactly new for an industry conference like this.
“The sponsors and attendees have always changed throughout the years," said Jump Trading CIO Dave Olsen. "Years ago the futures-focused attendees would say ‘I can’t believe all these derivatives people are here'…the turnout of crypto firms this year echoes this.”
FTX in focus
While the flash-with-cash approach of erstwhile crypto firms made them a topic in and of themselves at Boca, one specific crypto topic seemed to dominate the conversation: FTX's proposal to launch crypto derivatives in the US.
For most crypto-native market participants, the inside baseball of FTX's plans to launch futures stateside is among the industry's least exciting developments. But at Boca, it was among the most controversial.
As previously reported by The Block, FTX wants to go direct to its users with derivatives, upending the traditional ways in which derivatives exchanges engage with end clients. Typically, a trader will need to engage with a derivative contract through a broker or futures commission merchant. FTX's plan, which is subject to approval by the Commodities Futures Trading Commission, would allow traders to trade FTX’s crypto futures on their platform rather than through an external brokerage firm.
At first glance, that approach could be perceived as a threat to the companies that sit between brokers and exchanges.
"For some, the realization that crypto can transform the derivatives industry drives incredible excitement," noted Chris Perkins, a former executive at Citigroup, who attended the conference for CoinFund, his current firm. "For others, you can see the terror in their eyes as the realization takes hold that they must overhaul their legacy systems to compete."
According to Perkins, it should come as no surprise that FCMs are nervous given the history. Futures commission merchants have been under pressure from additional regulatory costs since the 2010 passage of the Dodd-Frank financial regulation bill and industry consolidation in what is a low-margin business.
"Technology now allows a viable direct access model," he said. "Implemented correctly, a direct access model could also play a part to mitigate systemic risk."
Still, FTX wants to get everyone on board with its plans, including the FCMs and CME Group, the proverbial elephant in the room.
Market participants observed that CME Group might be against FTX's plans because it would allow the company to operate a more wide-ranging business than CME as an exchange, clearinghouse and broker. That opens FTX up to more revenue and significance in the market compared to existing majors.
As noted by Jump's Dave Olsen: "If FTX’s application is successful and DCOs can lever their direct access to retail, we would expect exchange valuations to increase dramatically."
Tim McCourt, an executive at CME, told The Block that the firm was digesting FTX's plan and could possibly submit a comment to the CFTC.
To be sure, a more direct model could also open the door to CME Group making a similar move. Still, the de-emphasis of FCMs could be scary for them. But there is a flip side: they can add high touch value-adds to certain clients and still play a role in FTX’s model.
"I'd say we do feel invited to keep the dialogue going with them (and we made a clear distinction from doing the FTX model for crypto products versus doing it for all commodity products)," noted FTX's Ryne Miller in a message to The Block.
As for FCMs, FTX's Brett Harrison emphasized in a conversation during the conference that they would have a role in its model and would be able to route clients to its new products.
"Right now just waiting for more comments to come in, continuing to have more conversations with industry members (trading firms, FCMs, etc.) to talk further in detail about our proposal," Harrison said.
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