CFTC Approves First Regulated Bitcoin Derivatives Exchange and Clearinghouse

The U.S. Commodity Futures Trading Commission (CFTC) has approved institutional bitcoin derivatives platform Ledgerx LLC as the first federally-regulated bitcoin options exchange and clearinghouse. Ledgerx plans to start trading bitcoin options in the fall and ether options a few months after that.

Also read: Ledgerx Receives Federal Approval as a Regulated Bitcoin Swap Exchange

The First Bitcoin Exchange and Clearinghouse Approved

CFTC Approves First Regulated Bitcoin Derivatives Exchange and ClearinghouseFounded in 2013, institutional bitcoin derivatives trading and clearing platform Ledgerx has been approved by the CFTC as a fully-regulated bitcoin options exchange and clearinghouse. The Commission approved the company as a Swap Execution Facilities (SEF) early this month and then, on Monday, as a Derivatives Clearing Organization (DCO).

Ledgerx has become the first digital currency platform to be both a SEF and a DCO. The Commission announced on Monday:

By a unanimous vote of the Commission, it has issued an order granting Ledgerx, LLC (Ledgerx) registration as a derivatives clearing organization under the Commodity Exchange Act (CEA)…Under the order, Ledgerx will be authorized to provide clearing services for fully-collateralized digital currency swaps.

CFTC Approves First Regulated Bitcoin Derivatives Exchange and ClearinghouseLedgerx CEO Paul Chou conveyed to Reuters that it took the Commission more than two years to grant his company the two statuses, due to a long education process. He has also been a member of the CFTC’s Technology Advisory Committee. In May, the company received funding of $11.4 million led by Miami International Holdings Inc and Huiyin Blockchain Venture Investments.

Ledgerx plans to launch bitcoin options in the early fall, and ether options “within a few months,” Chou told CNBC. “Initially, Ledgerx expects to list one- to six-month option contracts for bitcoin. Other digital currency contracts such as ethereum (ETH) options are expected to follow,” he told Reuters.

Institutional Investors Can Now Enter the Space

“Having a regulated clearinghouse will open the market to a lot of other investors such as large institutions,” Reuters quoted Chou saying, adding that a proper regulatory framework will make institutional investors comfortable and open the market up to them. He further commented:

We are seeing strong demand from institutions that previously could not participate in the bitcoin market due to compliance restrictions against unregulated venues. In particular, there is a desire for fund managers to hold financial instruments that are not correlated with the broader equity market, and digital currencies meet that need.

In an interview with CNBC, he said “we’re really excited to welcome a whole host of parties that traditionally have been very retail-oriented.” Furthermore, he expects “very large asset managers to enter the space” as a result of the CFTC’s approval.

Exemption Granted

In addition, the CFTC has granted Ledgerx an exemption from Section 39 of the Commodity Exchange Act. The Commission wrote, “in response to a request from Ledgerx, the Commission’s Division of Clearing and Risk also today issued a letter exempting Ledgerx from complying with certain Commission regulations due to Ledgerx’s fully-collateralized clearing model.”

Without this exemption, Ledgerx as a clearinghouse would have to undertake monthly stress tests of its financial resources “to ensure that it could withstand the default of its largest participant,” Waters Technology explained. Chou told CNBC that the exemption was due to his company’s plan to “not allow very leveraged trading.”

Do you think Ledgerx’s platform will bring institutional investors to bitcoin? Let us know in the comments section below.

Images courtesy of Shutterstock, CFTC, and Ledgerx

Need to calculate your bitcoin holdings? Check our tools section.

  • Snide 2

    God it makes me sick to see the Government getting involved in digital currency in any way shape or form whether its in a positive or negative way.

    • um they already have digital fedcredits, a deriviative of the USD, they keep track of them at the FRB, and the FRB has on deposit on their electtronic tally stick like 20 trillion? but when the depsoitors all go to cash out their digital fedcredits into hard currency USD, every $20 in USD in the can only yield $1, debase is coming! the WEST (FRB)(IMF) already lost to the east (BRICS)(AIIB)(.DE)

  • Jim Shepard

    Amazing!! Well, so I actually did find the official statement article in the .GOV website for the CFTC that supports this actually being true. It frankly surprises me in this stage of the Bitcoin game that this type of U.S. federal authorization would have been granted. I did expect this to probably happen, just not nearly this soon; and I definitely didn’t think it would happen until well AFTER August 1st when everyone knows for sure whether Bitcoin ends up with a soft fork, a hard fork, or whatever kind of fork. So if there does end up a hard fork with two variations of Bitcoin, will this LedgerX company be offering derivatives trading for BOTH coins, or just one of them? And if it’s only going to be one of them, then which one is it?

    • Shinra Tech

      It will be Bitcoin (BTC).

    • nima

      Why don’t you buy Bitcoin itself but rather a derivatives of it?

  • Shinra Tech

    This will be big for Bitcoin. They should rather list ETC and not waste their time with ETH. Soon enough everyone will catch on why…

  • Mattyoung

    The margin they mention is denominated in tax dollars proving once again that bitcoin needs the central bank dollar for pricing. What is this thing called margin that none of the exchanges can understand? Hmm, I bet it involves some sophisticated, like adding and subtracting, likely something to difficult to do with bitcoin.

    Not!! Bitcoiners are stuck with this disavowal of saving and lending and now have to overcome the myth, I have faith, some bitcoiners actually have enough brains to figure it out. Soon margins will be denominated in bitcoin.

    • Stephen Mifsud

      Love your opinion but i am still puzzled to your beliefs…. i thought that hedge fund interventions would be in support of blockchain… my first vibe was ” its time to cold storage bitcoin” when I heard the news..

  • nima

    Well, I guess the gambling tool for Wall st. is just started working!

    Now I’m sure No one uses loopholes to buy these volatile while lucrative cryptos on Margin with 10:1 ratio.