CFTC Issues New Guidance on Cryptocurrency Derivatives

The top US markets regulator has issued new guidance to exchanges and other trading platforms that are interested in listing bitcoin futures and other cryptocurrency derivatives products.

The Commodity Futures Trading Commission (CFTC) released this new guidance on Monday, providing exchanges with a set of best practices to follow as they develop and launch these nascent cryptocurrency derivatives products.

Specifically, the CFTC advised trading venues that they must have the ability to monitor the integrity of the underlying spot markets that supply their pricing data, coordinate closely with CFTC staff, solicit comments from industry participants prior to launch, and engage in large trader reporting.

“The CFTC staff is committed to providing regulatory clarity as much as possible,” said Amir Zaidi, the director of the commission’s division of market oversight. “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.”

“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,” added Brian Bussey, the director of the commission’s division of clearing and risk. “In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.”

The new guidance appears to be a response to industry criticism that the CFTC had failed to sufficiently scrutinize the first bitcoin futures products prior to their launch in December. To date, those markets have behaved in an orderly fashion, but critics fear that this could change as volume increases and exchanges launch products for smaller cryptocurrencies such as ether (ETH), and ripple (XRP).

As CCN reported, CME — the largest US exchange that offers bitcoin futures trading — recently partnered with several cryptocurrency exchanges to create a benchmark price for ether, leading to speculation that the platform will soon become the first US venue to offer an ethereum futures product.