Credit rating service Moody’s said Wednesday that it doesn’t believe the launch of bitcoin futures will hurt the creditworthiness of either CME or Cboe.
Moody’s published the report earlier today, a move that comes nearly two months after the exchanges first moved to list the derivative products. The 11-page release argues that the combination of risk management controls at the two firms, as well as the nascent state of that market, reduces those risks.
The service wrote:
“So far Bitcoin futures volumes have been low, but CME and Cboe hope to tap into the investment community’s interest in the underlying asset. Bitcoin prices have been highly volatile, but we don’t expect this market risk to materially affect CME’s or Cboe’s creditworthiness given the small volumes involved and strong risk management at the central counterparty clearing houses (CCPs).”
The report presents a combination of observations on the development of those futures markets to date, as well as an examination of the issues Moody’s believes, are most pressing in this context, including the volatile price of bitcoin. That said, the report’s authors say that moves to request higher margins for bitcoin futures trades helps lessen the risks.
“Bitcoin’s price volatility presents particular risk management challenges for CCPs, making it more difficult to close out a defaulting clearing member’s exposures,” the firm wrote. “To manage this risk, both CME and Cboe set relatively high margins for Bitcoin futures trades to mitigate counterparty exposure, and have since upped margins from those they first presented to regulators. For now low volumes also limit potential losses to a CCP.”
This also goes for brokers who are offering access to bitcoin futures, Moody’s goes on to argue – even if it’s not entirely clear how those margins will be adjusted in the months to come. The report names TD Ameritrade and E*Trade in particular.
“Clearing margins will remain in flux, and may rise rapidly and significantly in response to higher spot Bitcoin price volatility, and brokers will have to adhere to these changes.”
Disclosure: CME Group is an investor in Digital Currency Group, CoinDesk’s parent company.
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