FIA Response to CFTC Allowing Self-certification Bitcoin Futures and Products
Last year the CFTC became active establishing its jurisdiction in the cryptocurrency landscape. The Commission released a primer on Virtual Currency and declared Bitcoin is a commodity under the Commodity Exchange Act. By mid-December 2017 the Commission had launched its own webpage for bitcoin and cryptocurrency, approved LedgerX to deal Bitcoin Options, and allowed self-certified new contracts for Bitcoin futures and products for three regulated exchanges, the Chicago Mercantile Exchange, the CBOE Futures Exchange, and Cantor Exchange. That last move prompted the FIA to write an opposing views letter from their CEO and President Walt Lukken, who served as acting chairman to the CFTC during the financial crisis.
In the letter Mr. Lukken express FIA clearing members concern that they will absorb the risk brought by the volatile Bitcoin products. The letter entails that the short self-certification process is not suited for Bitcoin futures and products due to their unique risk profile as a new emerging instrument,
“We believe that this expedited self-certification process for these novel products does not align with the potential risks that underlie their trading and should be reviewed. Given the lack of historical data on these products, it is further concerning to clearing members that they will bear the brunt of the risk associated with them through their guarantee fund contributions and assessment obligations, even if not participating in these markets directly, rather than the exchanges and clearinghouses who have listed them.”
The letter asked for “a more through and considered process” for public discussion and consultation with risk committees of the relevant exchanges. They cited that both the CFTC and the NFA have released public statements regarding the risks associated with virtual currency trading and asked for proper considerations of Bitcoin products to ensure they are not at risk of fraud and manipulation.
CFTC Advisory Committee Meetings on Cryptocurrency
The CFTC started this year focused on cryptocurrency. To cooperate with FIA requests, it announced two committee meetings for virtual currency, released a backgrounder on their oversight for virtual currency, and a statement from CFTC Chairman J. Christopher Giancarlo on the direction the Commission is taking on ICO and cryptocurrency regulation.
The first meeting will take place on January 23, 2018 in the Commission’s headquarters in Washington DC featuring the CFTC’s Technology Advisory Committee (TAC). The TAC will discuss timely topics including Viritual Currency and Blockchain technologies, and “identify work streams and/or subcommittee groups that can help generate actionable recommendations to the Commission on select issues.” This meeting leaves speculation that the FIA would potentially receive an audience with the CFTC’s future decision on Bitcoin products trading. More information regarding the event can be found here.
The second meeting on January 31st will feature the CFTC’s Market Risk Advisory Committee and will discuss the regulatory process on self-certification for listing new and novel products on CFTC-regulated Designated Contracts Markets and Swap Execution Facilities. Commissioner Rostin Behnam gave light into the upcoming meeting,
“With the rapid development of financial technology products – including cryptocurrencies – and the corresponding demand for new and novel price discovery and risk management tools, the CFTC is poised to utilize its authority and expertise to ensure that the markets we oversee innovate responsibly within an appropriate oversight framework.”
Both meetings are open to the public on first-come, first-serve basis. It will also be streamed live on audio feed and through a webinar. More information can be found here.
FIA to Discuss CFTC’s Approach to Cryptocurrency and FinTech.
On January 25, 2018 at 10:00 am EST the FIA will host a webinar to discuss the CFTC’s approach to cryptocurrency and novel products in the FinTech landscape. As described on the FIA page,
“This webinar will explore the CFTC’s approach to fintech, focusing on recent developments involving cryptocurrency products and market places and industry initiatives to use distributed ledger technology and smart contracts to significantly enhance the infrastructure of the derivatives and futures market places.”
To register for the webinar, visit their events page here.