The introduction of perpetual futures into regulated markets has sparked concerns about systemic risk, driven by high-leverage retail trading. However, the risk is not inherent to the contract itself, but rather a result of the venue's design, including leverage caps, margin rules, and default management.
The real question is not whether perpetuals belong in regulated markets, but how a given venue is built to handle risk. Regulatory requirements, such as segregated funds and oversight, are essential, but the key to mitigating systemic risk lies in the venue's ability to handle defaults and liquidations. Institutions may not want perpetuals as a replacement for regulated futures, but they can use them to hedge directional exposure. The liquidity of perpetuals, driven in part by retail flow, is a valuable asset for institutions.
By implementing institutional-grade default management, venues can provide a safe and liquid environment for institutions to trade perpetuals. The debate surrounding perpetuals is not about their inherent risk, but about the design of the trading venue and its ability to contain and manage risk.