U.S. regulator says 24/7 trading is great for crypto, may not be fit for other sectors
As the CFTC issued landmark approvals for crypto perpetual futures contracts, it explained in a related advisory that round-the-clock activity isn't right for all.
U.S. regulator says 24/7 trading is great for crypto, may not be fit for other sectors
As the CFTC issued landmark approvals for crypto perpetual futures contracts, it explained in a related advisory that round-the-clock activity isn’t right for all.
The U.S. Commodity Futures Trading Commission advises that 24/7 trading is a fit for crypto firms but maybe not for other derivatives platforms. (Jesse Hamilton/CoinDesk)
What to know:
The U.S. Commodity Futures Trading Commission issued an advisory to the derivatives industry that warns of some pitfalls in expanding to 24/7 services, but suggests that the nature of the crypto sector lends itself more appropriately to that schedule.
The letter to regulated companies suggests an increasing supervisory divide between the new digital entrants and the traditional players, and it came the same day the CFTC allowed crypto firms to get into 24/7 perpetual futures contracts.
The advisory — coming on the same day that the agency gave a consequential green light to native crypto platforms offering perpetual futures contracts — marks what may be a growing divide between the traditional firms and the new entrants.
“Because of inherent differences between underlying markets, switching to 24/7 trading and clearing may not currently be suitable for all asset classes,” the agency wrote to its regulated exchanges and clearing operations.
“The ability to engage in, and maintain, markets on a 24/7 basis has been, in part, paralleled by evolutions in market technologies, such as blockchain networks and decentralized infrastructure, alternate forms of collateral, including stablecoins and crypto assets, and market accessibility through smartphones and associated software applications,” the CFTC noted. “With this evolution, an increasing number of platforms, with a growing list of tradeable products, are providing 24/7 access to retail and institutional participants.”However, it said, “other derivatives markets, such as in agricultural products, may be less
suited for 24/7 trading due to their unique customer bases, regional nature, and the specialized
trading and hedging practices in those markets.”
The derivatives watchdog’s primary concern is the potential for market abuse in less-observed, off-peak activity, contending that “extending trading hours to a 24/7 schedule for certain markets or products could potentially result in reduced liquidity, increased volatility, widened bid/ask spreads, and, as a result, create greater opportunities for market manipulation.”
The platforms are responsible for policing themselves as the first line of defense and “should implement additional compliance measures designed to address the unique challenges associated with expanded trading hours.”
The advisory was meant to lay out the considerations for firms looking to expand trading hours, and the CFTC urged them to communicate their plans to the agency.
The current chief of the agency, Chairman Mike Selig, has made it one of his leading priorities to embrace new technologies including crypto and prediction markets. His enthusiasm for the advances — tracking the orders and encouragement from President Donald Trump — has led to a surge in crypto policy work meant to clear a regulatory path for the industry.
One of the crypto-native firms supervised by the CFTC, Coinbase, said in a blog post on its website on Friday that it’s trying to rebuild traditional financial services atop crypto infrastructure.
“Equities, futures, and prediction markets all operate 24/7 on our platform,” the company said, noting the agency’s new allowance of global options and perps through one of its CFTC-regulated affiliates. “Today’s announcement adds the largest and most liquid category of global crypto trading to that lineup.”
