The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, but this criticism is misplaced. The true risk lies not in the contracts, but in the design of the trading venue, including factors such as leverage caps, margin rules, and default management. The risk of systemic events is not inherent to perpetual futures, but rather a result of how the venue is designed to handle stress and potential defaults.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is constructed to manage risk. Regulatory requirements are essential to establish a baseline of security, but the way a venue handles defaults under stress is a separate consideration.
Institutions may not want perpetuals as a replacement for traditional futures, but they can be useful for hedging delta exposure. The liquidity provided by perpetuals can be beneficial for institutions, and with proper design and risk management, they can be a valuable tool. The key to containing systemic risk is not to eliminate perpetuals, but to design venues that can handle defaults and stress in a way that prevents the transmission of risk. By meeting regulatory standards and implementing effective risk management, perpetuals can become a safe and useful infrastructure for institutions.