December 7, 2017

CME, CFE, and Cantor Certify New Bitcoin Derivatives

On Friday, December 1st, the U.S. Commodity Futures Trading Commission (CFTC) agreed to allow trading of bitcoin derivatives on the Chicago Mercantile Exchange (CME), CBOE Futures Exchange (CFE), and the Cantor Exchange. The CME and CFE both self-certified new contracts for bitcoin futures, while the Cantor Exchange self-certified a new contract for binary options on bitcoin. The CFE plans to launch its futures on December 10th, with the CME coming in at a close second on December 18th. Cantor has not yet announced the official date of its bitcoin swaps launch;  however, its website is already accepting registration to participate with a $100 down payment.  

These contracts will allow traders to bet on the prices of the cryptocurrency without actually owning any bitcoins themselves. These contracts will allow traders to bet on the prices of the cryptocurrency without actually owning any bitcoins themselves. According to the CBOE and CME, their bitcoin futures products will be settled in cash. This development speaks to the recent trend of mainstreaming cryptocurrency in the marketplace by eliminating the need to obtain it in order to gain exposure to changes in its price. These contracts will allow traders to bet on the prices of the cryptocurrency without actually owning any bitcoins themselves.

The conditions of the agreement between the CFTC and the three exchanges were discussed in detail for a significant period of time before the announcement was officially made. All three parties consented to much more thorough contract design and settlement as well as information sharing with underlying cash bitcoin exchanges for increased surveillance.

After the products are launched, the CFTC will continue to monitor the exchanges where they are traded.  There remains much regulatory uncertainty regarding the treatment of cryptocurrency derivatives, and the CFTC’s future pronouncements on these products at the CME, CFE, and Cantor Exchange may provide insight into how the Commission will handle future applications.

The CFTC also announced its intent to collaborate with the National Futures Association (NFA) in the interests of further monitoring bitcoin derivative trading on the exchanges. Regardless of the CFTC’s efforts to ensure fair trade, the Commission still issued a warning along with the bitcoin derivatives announcement that this particular market is largely unsupervised and carries a unique set of risks, accompanied by at times extreme volatility that should be acknowledged.

Article by Julianne Dardanes

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