CFTC Issues Guidance for New Crypto Derivatives Listings

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Lydia Beyoud

The Commodity Futures Trading Commission is offering guidance to exchanges, swaps dealers, and clearinghouses interested in listing virtual currency derivatives products.

The May 21 guidance comes as virtual commodity-based financial products continue to develop, with exchanges offering futures product and index funds and considering other products. Much of the guidance notes the need for heightened scrutiny of the virtual currency markets in order to prevent market manipulation, particularly for trading in a commodity unlike any the CFTC has dealt with in the past.

The heads of the CFTC’s Division of Market Oversight and Division of Clearing and Risk said in the guidance that they are focused on enhanced scrutiny of the virtual currency market and increasing communication among trading platforms and regulators.

For example, exchanges offering virtual currency derivatives products will be expected to file large trader reports for any derivative contract above five Bitcoin or its equivalent in other digital currencies. Bitcoin was trading at more than $8,200 at the time of publication.

“Staff believes that at this level reporting will cover 70-90 percent of the total open interest in these contracts,” the directors of the agency’s said in a joint advisory.

The agency reserved the right to adjust the guidance as the virtual currency market and contracts develop.

Communication Key

The advisory outlines other expectations for exchanges, swap execution facilities, and clearinghouses considering listing virtual currency derivatives, including close communication with CFTC staff and stakeholders prior to listing new contracts.

The guidance comes as cryptocurrency exchanges operating in the U.S. discuss the prospect of forming a self-regulatory organization that could further organize virtual currency financial markets around shared principles and reporting expectations.

In a May 21 statement, Democratic CFTC Commissioner Rostin Behnam said the advisory would provide greater transparency for listing new products.

However, he added he would like to see the commission consider a formal rulemaking, including considering when self-certification for new derivatives and other products might not be appropriate.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law