SBI Alpha, QCP Capital, and Zodia Custody pioneer safer and more transparent way to manage derivatives credit risk with industry-first method
Counterparties conduct first uncleared crypto derivatives trades using unique, bankruptcy-remote, multi-custodian collateral network when executing on regulated Clear Markets platform
TOKYO, Singapore, London, Charlotte June 22, 2023 – SBI Alpha Trading Co. Ltd. and QCP Capital Pte. Ltd., leading counterparties in the institutional crypto market, today announced that they have executed the industry’s first uncleared cryptocurrency options trades using a breakthrough risk management method for crypto derivatives.
The traders used a unique bankruptcy-remote, multi-custodian network to ensure that collateral
• is in place at the time of trade,
• can be bolstered by periodic payments in real time on blockchain
• is protected from loss in the event of a counterparty bankruptcy, and
• is locked in an account at an independent custodian under a tri-party account control agreement, allowing a non-defaulting party to take control of the collateral if necessary.
This method of managing counterparty credit exposure, derived from traditional financial markets practices, eliminates significant risks taken by counterparties of FTX and other crypto trading units that have collapsed. This reduces the cost of moving the collateral and enables increased frequency of variation margin payments, reducing the time between price changes and lowering the credit risk.
It builds on techniques widely used in the multi-trillion-dollar fiat currency swap business, under the sponsorship of the International Swaps and Derivatives Association (ISDA), however this is the first time that this approach is being applied to a cryptocurrency swap and automated on a blockchain.