The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, the critique is misguided, as the risk is inherent to the venue's design, including leverage limits, margin rules, and default handling, rather than the contract itself. The real question is how a venue is built, with regulatory requirements providing a baseline for security.
The concern over perpetuals is not about their presence in regulated markets, but about how institutions use them. A recent JPMorgan note highlighted limited institutional appetite for perpetuals, citing their speculative nature and imperfect substitution for regulated futures. Nevertheless, institutions use perpetuals to hedge delta, leveraging their liquidity, which is drawn in by retail flow.
The key to safe usage is institutional-grade default management, which contains systemic risk. The debate surrounding perpetuals is not about their danger, but about how venues handle defaults under stress.
Regulated clearing has established a standard for decades, which Bullish is working towards, having filed with the CFTC to operate as a regulated contract market and clearinghouse. By containing defaults at their source, rather than transmitting them to the market, venues can break the chain that turns a blown-out account into a market-wide cascade, making perpetuals a viable infrastructure for institutions.