The U.S. Commodity Futures Trading Commission has granted Ledgerx the full status of Swap Execution Facility. The company is on its way to become the first federally-regulated bitcoin options exchange and clearinghouse.
Ledgerx Now a Swap Execution Facility
The U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that it has granted Ledgerx LLC the status of a Swap Execution Facility (SEF). SEFs are platforms that operate under the CFTC’s regulatory oversight for the trading of swaps.
The agency stated that after reviewing Ledgerx’s application and associated exhibits, it has determined that the company demonstrated compliance with the Commodity Exchange Act and the agency’s regulations applicable to SEFs. “With this order, there now are 25 SEFs registered with the CFTC,” the agency noted. However, there are only two with bitcoin investment products, Ledgerx and Tera Exchange. The latter was granted the SEF status in May 2016.
In May, Ledgerx’s parent company Ledger Holdings received funding of $11.4 million. “These investments will further our application to become a regulated exchange and clearinghouse for bitcoin options,” Ledgerx CEO Paul Chou said at the time.
But Not yet a Clearinghouse
Ledgerx had two applications with the CFTC. The first was to become a SEF, for which it received temporary registration approval from the Commission in September 2015 and now full registration status on Thursday.
The second application is to become a Derivatives Clearing Organization (DCO), which any clearinghouse must register as before providing clearing services for futures contracts, options on futures contracts, and swaps.
If the latter is also approved, “Ledgerx would be the first federally-regulated bitcoin options exchange and clearinghouse to list and clear fully-collateralized, physically-settled bitcoin options for the institutional market”, the company claims, adding that:
Upon approval, participating institutions can use the Ledgerx platform to obtain and hedge bitcoin using exchange-traded and centrally-cleared options contracts.
In an interview with Bitcoin.com in February, Chou explained that initially Ledgerx will list bitcoin vanilla puts and calls with standardized strikes and expirations. “Strikes will be in a range around the current spot price and expirations will be from one-to-six months in tenor,” he said, adding that the products will be listed on the Ledgerx SEF and cleared by the Ledgerx DCO, once approved. The company aims to be “an integrated exchange and clearing operation so all parts of the transaction lifecycle from contract listing, trade matching, to final settlement are handled by us,” Chou described.
While Ledgerx is not the first bitcoin derivatives platform to become a SEF, it will be the first to receive both the SEF status as well as the DCO status, if approved. The platform will then be the first to operate as both a bitcoin swap exchange and a clearinghouse under the CFTC’s oversight.
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Images courtesy of Shutterstock, CFTC, and Ledgerx
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