Before the FTX implosion, FTX had created quite a regulatory stir in the futures industry with a proposal before the CFTC for a clearing model that eliminated the need for FCMs. Abaxx Exchange Chief Commercial Officer Joe Raia has been outspoken in his support for FCMs. John Lothian News caught up with Raia at the recent FIA EXPO 2022 in Chicago to discuss his views.
Raia said FCMs play an important role in the marketplace that a lot of people don’t understand. Raia spent 7 years working for Goldman Sachs and 12 at the NYMEX and CME Group before that, so he has seen the value of FCMs from a risk management perspective.
We asked him whether the Asian exchanges will look at the FCM model. Abaxx Exchange is regulated by the MAS in Singapore and is getting ready for launch next year, and it uses the FCM model.
Raia emphasized the importance of the technology FCMs have built to liquidate customers that are defaulting.
We asked Raia how FTX has impacted the market. Raia mentioned the liquidation algorithm FTX was proposing in its CFTC proposal and how, given what he saw while at Goldman Sachs during the MF Global collapse, it would have been a difficult task for an algo.
Abaxx is currently working on physically delivered futures contracts. The market needs a buyer and seller of last resort, he said, so that is what Abaxx is trying to provide.