May 21, 2018

CFTC issued an advisory on the virtual currency derivative product listings. The advisory provides guidance on certain enhancements when listing a derivative contract based on virtual currency. It clarifies the priorities and expectations of CFTC staff in its review of new virtual currency derivatives to be listed on a designated contract market or swap execution facility, or to be cleared by a derivatives clearing organization.

As per the advisory, the following key areas require attention in the context of listing a new virtual currency derivatives contract:

  • Enhanced market surveillance
  • Close coordination with CFTC staff
  • Large trader reporting
  • Outreach to member and market participants
  • Derivatives Clearing Organization risk management and governance

CFTC, in 2015, found virtual currencies such as Bitcoin to be commodities subject to oversight under its authority under the Commodity Exchange Act (CEA). Since then, CFTC has taken action against unregistered Bitcoin futures exchanges; enforced the laws prohibiting wash trading and prearranged trades on a derivatives platform; issued proposed guidance on what is a derivative market and what is a spot market in the virtual currency context; issued warnings about valuations and volatility in spot virtual currency markets; and addressed a virtual currency Ponzi scheme. This recent guidance is another effort to ensure that CFTC is exercising appropriate oversight, while encouraging innovation and growth in these products.

Keywords: Americas, US, Banking, Securities, Virtual Currencies, Regtech, Fintech, Derivatives, CFTC

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