In December 2017, when the cryptocurrency market was peaking, the first Bitcoin futures contracts were issued and triggered an exhilarating rally in the cryptocurrency market, pushing Bitcoin to an all-time high. As expected, the U.S. Commodity Futures Trading Commission (CFTC) has published its guidance for exchanges and clearing houses who deal with cryptocurrency derivatives listings.
The regulator has identified two main concerns with regard to the offering of cryptocurrency derivatives:
First, "virtual currency platforms present heightened concerns about potential impacts on CFTC-regulated markets, including potential market manipulation, because they lack the transparency and robust regulation as U.S. derivatives platforms."
Second, the agency has cautioned that cryptocurrency trading is a new phenomenon and prices are relatively volatile. Exchanges and other crypto marketplaces may not be able to "adequately assess the inherent risk of virtual currency contracts in setting margin levels for these contracts."
The new guidance points out that in order to list a new virtual currency derivatives contract, exchanges and clearing houses must provide enhanced market surveillance, close coordination with CFTC staff, large trader reporting, outreach to member and market participants, and derivatives clearing organization risk management and governance.
Commenting on the latest guidelines, Amir Zaidi, director of the Division of Market Oversight has said, that exchanges who want to launch cryptocurrency derivative contracts must be able to monitor underlying cryptocurrency spot markets. In addition, the exchanges must ensure that they have a plan for coordinating with federal regulators and reach out to market participants to solicit comments on a pending contract launches.
“The CFTC staff is committed to providing regulatory clarity as much as possible. 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.” To emphasis the importance of the new guidelines, Brian Bussey, director of Divisions of Clearing and Risk, further explained that;
“CFTC staff is providing this information, in part, to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products. In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.”