Futures exchanges as “hot commodities” is the theme of ”John’s Take”

John Lothian Publisher John Lothian News

JOHN LOTHIAN

Executive Chairman & CEO

John J. Lothian is the founder and co-owner of MarketsWikiMarketsWiki Education and MarketsReformWiki and the publisher of John Lothian News.

JOHN’s take

The (little) Exchange is the Hot Commodity

Futures exchanges are hot commodities, to borrow a line from investor Jim Rogers. I have always said our futures markets were the “World’s Best Markets.” So there is that too.

This week, as Alex Perry reported, Coinbase bought FairX, a JLN sponsor. The deal is expected to close in late March.

All the way back on December 1, 2021, Crypto.com announced it was buying Nadex and the Small Exchange from the IG Group.

Then in October, Cboe joined the party and bought Eris Digital Holdings, LLC, known as ErisX, which operates a U.S. based digital asset spot market, a regulated futures exchange and a regulated clearing house.  

On August 31, 2021, FTX.US, the fast-growing crypto currency exchange founded by Sam Bankman-Fried, the only man besides Facebook’s Mark Zuckerberg to get so rich before the age of 30, bought LedgerX LLC, a Commodity Futures Trading Commission (CFTC)-regulated digital currency futures & options exchange and clearinghouse.

Just over two years ago, in December of 2020, this run on futures exchanges started when Miami International Holdings, Inc, the parent company of the MIAX Exchange Group, closed the deal buying the Minneapolis Grain Exchange. 

What all of these deals have in common is plans to leverage these existing exchanges and clearing houses in some cases for greater opportunities than the stand alone exchange could ever hope to develop. Some are crypto exchanges trying to break into traditional derivatives trading and maybe get a little whiff more of legitimacy to help attract institutions to their game. 

Others are traditional players trying to hedge their bets by offering something in the crypto world in case this bubble turns out to be really a mylar balloon with staying power. 

MIAX, who started it, so far seems content to offer innovative traditional derivatives products, assuming that is not too much of an oxymoron. 

There is also the small contracts angle, as Nadex, Small Exchange and FairX all offer smaller sized contracts popular with retail traders today. 

I decided to take a look at the CFTC website to see who is left to buy. The page you want to look at is the Trading Organizations – Designated Contract Markets page.  

There are four different statuses of exchanges: Pending, Designated, Vacated and Dormant. Designated means the exchange has an active license. That does not mean it is trading, though, or maybe not much. The Bitnomial Exchange trades bitcoin futures. It has open interest of 9 contracts and volume today was 10.

The Cantor Exchange LP is gearing up to trade once again and this time it is not movie receipts, which were outlawed by Dodd-Frank. Its markets are “currently unavailable,” its website says.

Some of the pending exchanges are new crypto enterprises trying to get registered, like Gemini Titan, LLC.

There is the new designated exchange, Kalshi, which has former CFTC Commissioner Brian Quintenz on its board. 

There is the Los Angeles Grain Exchange, designed in 1922 and vacated in 1953 with its last trade in 1945. 

And there is a dormant exchange, the Merchants Exchange, that was once the Merchants Exchange of St. Louis. Its history goes all the way back to 1836. If there were one dormant exchange I would want to see come to life in this current run on small exchanges, it would be the Merchants Exchange with its long history. 

But for now, it looks like we are going to have to go back to having to file with the CFTC for new exchanges, as we are mostly out of existing, designated ones to buy. This means instead no more buying past the time delay friction brought to regulators by your competitors. That means no more buying someone else’s hard regulatory filing work. That means no more buying someone else’s good reputation. Now new exchanges are going to have to earn good reputations the old fashioned way. Actually, this is the way it ought to be.

 

The (little) Exchange is the Hot Commodity

Futures exchanges are hot commodities, to borrow a line from investor Jim Rogers. I have always said our futures markets were the “World’s Best Markets.” So there is that too.

This week, as Alex Perry reported, Coinbase bought FairX, a JLN sponsor. The deal is expected to close in late March.

All the way back on December 1, 2021, Crypto.com announced it was buying Nadex and the Small Exchange from the IG Group.

Then in October, Cboe joined the party and bought Eris Digital Holdings, LLC, known as ErisX, which operates a U.S. based digital asset spot market, a regulated futures exchange and a regulated clearing house.  

On August 31, 2021, FTX.US, the fast-growing crypto currency exchange founded by Sam Bankman-Fried, the only man besides Facebook’s Mark Zuckerberg to get so rich before the age of 30, bought LedgerX LLC, a Commodity Futures Trading Commission (CFTC)-regulated digital currency futures & options exchange and clearinghouse.

Just over two years ago, in December of 2020, this run on futures exchanges started when Miami International Holdings, Inc, the parent company of the MIAX Exchange Group, closed the deal buying the Minneapolis Grain Exchange. 

What all of these deals have in common is plans to leverage these existing exchanges and clearing houses in some cases for greater opportunities than the stand alone exchange could ever hope to develop. Some are crypto exchanges trying to break into traditional derivatives trading and maybe get a little whiff more of legitimacy to help attract institutions to their game. 

Others are traditional players trying to hedge their bets by offering something in the crypto world in case this bubble turns out to be really a mylar balloon with staying power. 

MIAX, who started it, so far seems content to offer innovative traditional derivatives products, assuming that is not too much of an oxymoron. 

There is also the small contracts angle, as Nadex, Small Exchange and FairX all offer smaller sized contracts popular with retail traders today. 

I decided to take a look at the CFTC website to see who is left to buy. The page you want to look at is the Trading Organizations – Designated Contract Markets page.  

There are four different statuses of exchanges: Pending, Designated, Vacated and Dormant. Designated means the exchange has an active license. That does not mean it is trading, though, or maybe not much. The Bitnomial Exchange trades bitcoin futures. It has open interest of 9 contracts and volume today was 10.

The Cantor Exchange LP is gearing up to trade once again and this time it is not movie receipts, which were outlawed by Dodd-Frank. Its markets are “currently unavailable,” its website says.

Some of the pending exchanges are new crypto enterprises trying to get registered, like Gemini Titan, LLC.

There is the new designated exchange, Kalshi, which has former CFTC Commissioner Brian Quintenz on its board. 

There is the Los Angeles Grain Exchange, designed in 1922 and vacated in 1953 with its last trade in 1945. 

And there is a dormant exchange, the Merchants Exchange, that was once the Merchants Exchange of St. Louis. Its history goes all the way back to 1836. If there were one dormant exchange I would want to see come to life in this current run on small exchanges, it would be the Merchants Exchange with its long history. 

But for now, it looks like we are going to have to go back to having to file with the CFTC for new exchanges, as we are mostly out of existing, designated ones to buy. This means instead no more buying past the time delay friction brought to regulators by your competitors. That means no more buying someone else’s hard regulatory filing work. That means no more buying someone else’s good reputation. Now new exchanges are going to have to earn good reputations the old fashioned way. Actually, this is the way it ought to be.

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