Business 24 May 2018

Gerald Fenech

CFTC issues guidelines for cryptocurrency derivatives listing

The U.S. Commodity Futures Trading Commission (CFTC) has published an intriguing advisory for clearing houses and exchanges about assessing as well as listing cryptocurrency derivatives products.

The CFTC, through its Division of Market Oversight (DMO) and its Division of Clearing and Risk (DCR), have issued a joint staff advisory which gives CFTC registered entities “guidance for listing virtual currency derivative products.” There have been grey areas over this issue with a long debate over whether cryptocurrencies are to be considered as financial instruments or whether they are simply digital coins. The advisory also clarifies what it terms as the “CFTC staff’s priorities” as well as “expectations in its review of the new virtual currency derivatives which are to be listed.”

In an advisory memo, DMO Director Amir Zaidi was very direct on the need to bring regulatory clarity to the cryptocurrency space, stating: “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.”

The advisory also outlines specific requirements in relation to enhanced market surveillance, coordination with CFTC staff, large trader reporting, outreach to market participants as well as risk management.

According to DCR Director Brian Bussey, the guidance aims “to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products,” while also ensuring “that market participants follow appropriate governance processes with respect to the launch of these products.”

The CFTC Chairman Christopher Giancarlo recently addressed the issue of cryptocurrency guidance during a speech at the North American Securities Administrators Association Conference. In his speech, Giancarlo described the CFTC as having been at the regulatory horizon on virtual assets, stating that the CFTC staff advisory reflected its current thinking, which was based on growing experience in working with virtual currency derivatives. He said that as new products continued to emerge, the CFTC would keep abreast of all developments, re-evaluating where necessary with possible revisits to the advisory notice to address any emerging issues.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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