Industry body clarifies what happens when crypto derivatives crash

Please fol­low and like us:
Pin Share

LONDON, Jan 26 (Reuters) — An indus­try body set out a glob­al frame­work on Thurs­day for trad­ing deriv­a­tives linked to cryp­toas­sets to avoid FTX-style col­laps­es sow­ing con­fu­sion over ownership.

The Inter­na­tion­al Swaps and Deriv­a­tives Asso­ci­a­tion (ISDA) pub­lished guid­ance for trad­ing dig­i­tal asset deriv­a­tives to clar­i­fy what hap­pens when things go wrong in an under­ly­ing mar­ket, such as the col­lapse of cryp­to exchange FTX.

While most of the recent prob­lems have occurred in the spot cryp­tocur­ren­cy mar­ket, many of the legal uncer­tain­ties could affect dig­i­tal asset deriv­a­tives too.

ISDA already over­sees the ‘mas­ter agree­ment’ or tem­plate used by banks to trade tril­lions of dol­lars in deriv­a­tives globally.

It will now include the body’s first stan­dard doc­u­men­ta­tion for trad­ing dig­i­tal asset deriv­a­tives, ini­tial­ly cov­er­ing non-deliv­er­able for­wards and options on Bit­coin and Ether.

It could be expand­ed in future to cov­er addi­tion­al prod­uct types, includ­ing tok­enized secu­ri­ties and oth­er dig­i­tal assets exe­cut­ed on dis­trib­uted ledger tech­nol­o­gy (DLT), ISDA said.

The frame­work sets out the rights and oblig­a­tions of both sides to a deriv­a­tives trade fol­low­ing mar­ket dis­rup­tion, and ISDA also pub­lished dis­cus­sion papers explor­ing legal ques­tions raised by the bank­rupt­cy of FTX.

The col­lapse of FTX led to the loss of bil­lions of dol­lars of cus­tomer assets rais­ing ques­tions about who owns assets held by a cryp­to exchange or intermediary.

“Recent fail­ures in the cryp­to mar­ket have empha­sized the impor­tance of hav­ing a clear, con­sis­tent con­trac­tu­al frame­work that spells out the rights and oblig­a­tions of both par­ties fol­low­ing a default,” said ISDA chief exec­u­tive Scott O’Malia.

“All cus­tomers, whether retail or insti­tu­tion­al, should know their assets are pro­tect­ed and under­stand their rights in the event of a default,” O’Malia said.

Report­ing by Huw Jones
Edit­ing by Bernadette Baum

Our Stan­dards: The Thom­son Reuters Trust Principles.

Source link

Please fol­low and like us:
Pin Share

Leave a Reply

Your email address will not be published. Required fields are marked *