Futures Exchanges Self-Certify Bitcoin Futures Products

CME Group (“CME”), CBOE Futures Exchange (“CBOE”) and the Cantor Exchange each announced that they have “self-certified” new bitcoin products. CME and CBOE self-certified the initial listing of bitcoin futures products, while Cantor self-certified a contract for bitcoin binary options.
CME Group self-certified the initial listing of its bitcoin futures contract beginning on December 18, 2017. CME stated that the bitcoin futures will be cash-settled based on the CME CF Bitcoin Reference Rate – a “once-a-day reference rate of the U.S. dollar price of bitcoin.” The contract will be made available for trading on the CME Globex electronic trading platform, and for submission for clearing through CME ClearPort. CME Group CEO and Chair Terry Duffy said that the contract “will be subject to a variety of risk management tools, including an initial margin of 35 percent, position and intraday price limits, and a number of other risk and credit controls that CME Group offers on all of its products.”

CBOE said that its product will be cash-settled based on the Gemini’s price for bitcoin (in U.S. dollars). CBOE has not yet announced the launch date.

The Cantor Exchange is also yet to announce a launch date, but declared that the “bitcoin swaps” will be unleveraged, allow for the ability to trade across a range of bitcoin prices and trade for dates that are one month, two months and three months in advance.

Noting the “relatively nascent” and “largely unregulated” markets here, which involve a commodity “unlike any the Commission has dealt with in the past,” CFTC Chair J. Christopher Giancarlo explained that the CFTC worked with the exchanges and facilitated “significant enhancements” to provide for greater investor protections. At the same time, he said, investors should remain cognizant of the “potentially high level of volatility and risk in trading these contracts.”

The CFTC stated that it will continuously monitor the exchanges as trading in bitcoin futures commences. The CFTC said it will focus on size and development of the market, changes in positions, open interest, initial margin requirements, variation margin payments and stress testing. The monitoring process also will encompass designated contract markets, derivatives clearing organizations, clearing firms and investors taking part in bitcoin futures products. The CFTC also released a fact sheet providing information on the self-certification process, under which exchanges are able to certify products pursuant to their own determination that such products are in compliance with the CEA and CFTC Rules.

The CFTC promised cooperation with the National Futures Association (“NFA”) in monitoring bitcoin futures-related activity of member firms. The NFA released an Investor Advisory outlining important precautions for investors considering trading bitcoin futures.

Lofchie Comment: What does this do to clearinghouse risk?

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