/U.S. CFTC to ‘Provide Regulatory Clarity’ for Listing Virtual Currency Derivatives

U.S. CFTC to ‘Provide Regulatory Clarity’ for Listing Virtual Currency Derivatives

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The top U.S. derivatives regulator on Monday provided guidance to exchanges and clearinghouses that want to list cryptocurrency products, responding to industry concerns about the vetting process for new derivatives contracts like bitcoin futures.

The staff advisory, which was jointly issued by the CFTC’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR), focuses on the specific areas involved in listing virtual currency derivatives on a designated contract market or swap execution facility. It covers the necessity for more market surveillance, coordination with CFTC staff, large trader reporting, and DCO risk management and governance.

The agency’s division of market oversight director, Amir Zaidi, said in a statement.

“As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

Marco Santori, President and Chief Legal Officer crypto wallet service Blockchain.com, tweeted a thread of commentary yesterday on the CFTC’s joint statement, pointing out that since the CFTC “keeps discretion as to what threshold constitutes a Large Trader in the crypto context. [It will be] interesting to see where that leads.” Santori’s main takeaway is a comparison of the CFTC’s ability to simply post guidelines for crypto derivatives, while the U.S. Securities and Exchange Commission (SEC) is faced with the more difficult task of deciding whether or not to define tokens and coins as securities:

CME Group Inc. CME 1.00% and Cboe Global Markets Inc. CBOE -0.07% launched separate bitcoin futures contracts in December, after limited consultations with the CFTC. Bitcoin’s volatility and worries about bitcoin exchanges’ lack of transparency and cyber vulnerability have caused some on Wall Street, including the Futures Industry Association, to call on the CFTC to take a harder look at virtual currency derivatives before allowing them to come to market.

Bitcoin futures have so far behaved like many other new contracts, without pronounced price volatility and limited but growing liquidity. A Federal Reserve Bank of San Francisco study found that the launch of bitcoin futures in December led to a steep drop in the price of bitcoin, since it allowed “pessimists” to have a say in the market as opposed to just investors who were bullish on bitcoin.

Yesterday, U.S. and Canadian securities regulators announced “Operation Cryptosweep,” a joint series of probes into fraudulent crypto investment programs.