in conjunction with
by invitation only Crypto OTC Summit
07 May, 2019, W Hotel, Lakeshore, Chicago
CORA @ Chicago 2019 Agenda
07 May, 2019, W Hotel, Lakeshore, Chicago.
Organized & moderated by Simon Nursey & Hoe Lon
Networking and Introductions
Review of Convention Guideline Document from CORA @ Singapore
Developing a Crypto Swap Market
Dealing with Defaults
Stablecoin Collateral and Settlement
The Need for a Crypto Trade Repository
Attended Crypto Communities (strictly by Invitation only):
Akuna Capital, Alameda Research, Altonomy, Altpoint Capital, B2C2, BAKKT, BitGo, Bitooda, BKCM, Bloomberg, Bluefire Capital, Circle, ClearMarkets, CMT Digital, Coinbase, CORA, Cumberland, Crypto Garrage, Galaxy Digital, GSR Markets, Jane Street, Jump Trading, Kinetic Capital, LedgerPrime, LedgerX, OSL, Paxos, Prime Trust, QCP Capital, Ripple (XRP), SeedCX, SIG Susquehanna, Silvergate, TrueDigital, USDC, XBTO and ZeroHash.
CORA @ Chicago Minutes & Discussions
The format was 4 key discussions, table led with results presented back to the room.
How Can We Grow the Derivatives Market?
1. What do you think are the main factors holding back growth in the OTC derivatives market? What is the primary factor?
2. What can we (and CORA) do about it?
Participants felt that fundamentally we needed to see more end-client demand. With the exception of the perpetual futures market, derivatives remains a very small part of the overall crypto market With no real shortage of use cases for derivatives, participants felt that key to growing demand is end client education.
However, it was felt that this is difficult to do on a broad basis for institutional clients. CORA could possibly organize educational sessions in the future in conjunction with the industry.
Bi-lateral credit lines remain one of the biggest limitations of market liquidity.
The group expects the development of the loan/borrow market to aid this – providing a means to hedge and price credit risk.
Development of a clearing function would also unlock inter-dealer credit lines. (see below)
With different parties having different trade confirmations, there is too much time wasted negotiating peripheral terms and conditions. It was noted that even if parties ultimately want to change those terms, a common starting point would aid negotiation and price formation immensely.
Limited Trading/Settlement Venues
Parties felt there were too few trading venues for derivatives and that broader adoption would be aided significantly by increasing the number of places where options and swaps could be traded. The addition of more trading venues will encourage more participation from the end users. It was noted that there are several new and existing exchanges planning to offer derivatives.
1. Create a working group to agree on a standard confirmation template for swaps, forwards, options.
Review of CORA1 Conventions
While the previous settlement standard has been T+1 it was found that the majority of dealers were currently operating at T+0 in order to reduce credit risk. This has been made easier by common fiat settlement networks.
It was proposed that we adopt same-day settlement at one of three standard settlement cycles coinciding with the end of the session in that timezone.
The choice of fiat USD as the standard form of collateral was challenged. Developing a common haircutting standard for coins would be useful as this is already beginning in the loan markets. Participants felt that there were significant benefits to trading entirely on the block-chain in the future but agreed on practical hybrid solutions in the meantime.
Group discussed the increasing challenges of KYC to the OTC market and particularly the increasing responsibility of KYCC. It was felt that it would be desirable to adopt common standards which would allow passporting.
Additional Option Expiry/Cut
Participants discussed the benefits of adding an additional cutoff time to match the Deribit 8am UTC making it possible to hedge OTC trades with exchange liquidity.
Delivery vs Payment convention was discussed. Standard practice is that the price taker to pays first. While increasing trading in certain more complicated structures will see maker/taker be less obvious in the future the current standard was considered acceptable for now. In addition, current fiat settlement solutions and future blockchain only solutions will make this less of a concern.
1. Create a working group to define minimum KYC standards that members would attest to thereby facilitating KYCC
2. CORA convention document amended to reflect taker pays first settlement convention.
3. CORA convention document amended to add additional 8am UTC expiry.
4. CORA convention document amended for standard settlement on the same day at the next settlement cycle time 4pm Hong Kong, London and New York.
These should be affirmed at the next CORA meeting.
Developing the Market for Crypto Loan Derivatives
1. What conventions do we need for crypto swaps?
2. Is there a need for a LIBOR style lending benchmark to facilitate interest rate swaps?
Participants discussed interest rate style benchmarks - but concluded that it was probably still too early for that market without an obvious use case yet.
The use case for FX swap style derivatives, which combine a spot trade with a forward trade, has a much clearer use case and provide alternative documentation to existing collateralized loans.
1. CORA will propose standards for fx swap style crypto swaps for the conventions document.
Dealing with Defaults
1. What policies already exist with regard to failure to pay? Do we need a common approach?
2. What is considered a default?
3. Should a default be communicated to the market?
The group discussed the challenges of defaults. There was a split in the group between those that felt that default was not a big challenge for the market vs those that did.
The group discussed the difference between default and late settlement, but were in agreement on the necessity of standards to maintain an efficient market.
The group decided that while information about a default or poor settlement by a party should be shared there is risk of rumour and allegation. Furthermore, most participants agreed that it was important not to be rigid and that many of the issues would be worked out between parties.
The group felt it could be useful for an independent entity to manage or assist with default standards.
Blacklist / Whitelist
The group discussed the possibility of a blacklist of counterparts which systematically failed to settle on time, but it was decided that it would be challenging to administer and the implications too severe.
Rather, a whitelist was proposed for CORA members that commit to and practice the highest standards of settlement.
Information on bad actions and actors would be shared in reference to the whitelist with implications for consistent failure to meet standards.
Default is a process as much as an event and there is a need for standard conventions.
1. Create a CORA accreditation scheme for trading and operational standards.
Setup a working group to define those standards and a procedure for applying and reviewing status.