An industry body set out a global framework on Thursday for trading derivatives linked to crypto-assets to avoid FTX-style collapses sowing confusion over ownership.
The International Swaps and Derivatives Association (ISDA) published guidance for trading digital asset derivatives to clarify what happens when things go wrong in an underlying market, such as the collapse of the crypto exchange FTX.
While most of the recent problems have occurred in the spot cryptocurrency market, many of the legal uncertainties could affect digital asset derivatives too
ISDA already oversees the ‘master agreement’ or template used by banks to trade trillions of dollars in derivatives globally.
It will now include the body’s first standard documentation for trading digital asset derivatives, initially covering non-deliverable forwards and options on Bitcoin and Ether.
It could be expanded in the future to cover additional product types, including tokenized securities and other digital assets executed on distributed ledger technology (DLT), ISDA said.
The framework sets out the rights and obligations of both sides to a derivatives trade following market disruption, and ISDA also published discussion papers exploring legal questions raised by the bankruptcy of FTX.
The collapse of FTX led to the loss of billions of dollars of customer assets raising questions about who owns assets held by a crypto exchange or intermediary.
