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CFTC to Discuss Blockchain For Derivatives, Taps LedgerX’s Chou as Advisor

Last Updated March 4, 2021 4:46 PM
Lester Coleman
Last Updated March 4, 2021 4:46 PM

The U.S. Commodity Futures Trading Commission (CFTC) will meet on Jan. 26 to review the dual capabilities of bitcoin and the blockchain for the derivatives market. The commission appointed Paul L. Chou, CEO and founder of Ledger X, as a bitcoin trading expert to its technical advisory committee.

The meeting will be from 9:45 a.m. to 3:45 p.m. at the CFTC’s Washington, D.C. headquarters. Attendees will discussion the proposed regulation of automated trading, swap standardization and harmonization, and the potential application of distributed ledger technology to the derivatives market.

LedgerX Seeks Bitcoin License

LedgerX has applied to operate as a regulated clearing house and exchange for trading bitcoin options. The CFTC is reviewing LedgerX’s derivatives clearing organization application after having approved a temporary swap execution facility license for the company. If approved, LedgerX would be the first federally-regulated bitcoin clearinghouse and options exchange to list and clear fully-collateralized, physically-settled bitcoin options for the institutional market.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it took enforcement action against a bitcoin operator for being unlicensed. That action marked the most significant bitcoin regulatory move in the U.S., along with the New York State BitLicense, also enacted in 2015.

The CFTC’s technology advisory committee, created in 1999, advises the CFTC on the impact of technology innovations for the securities market and financial services, along with the regulatory and legislative response to the growing use of technology in the markets. Committee members include representatives of financial intermediaries, traders, futures exchanges, self-regulatory organizations, and market participants.

Public Can Comment

Members of the public who wish to provide written statements should send them by Jan. 26. They should send letters to the attention of the Office of the Secretary at the CFTC headquarters or email them to [email protected]. The CFTC is located at Three Lafayette Centre, 1155 21st St. NW, Washington, DC 20581.

The LedgerX management team comprises Goldman Sachs, MIT, and CFTC alumni, who bring regulatory experience, financial expertise, and technical talent. Directors include Jim Newsome, former chairman of the CFTC and former CEO of NYMEX, and Tom Lewis, former CEO of Ameritrade and former CEO of Green Exchange. Mark Wetjen, the former commissioner of the CFTC and an early advocate of regulating bitcoin derivatives, sits on the board of the LedgerX holding company, Ledger Holdings Inc. Google Ventures and Lightspeed Venture Partners were early investors.

Regulatory Activity Time Line

Following is a timeline of major U.S. bitcoin regulatory activity.

  • Dec. 1, 2014: U.S. Rep. Steve Stockman, R-Texas, proposes a bill to set a five-year moratorium on digital currency regulation, seeking to delay statutory restrictions or regulations on digital currencies for the five-year period beginning June 15, 2015. The bill was tabled and referred to two committees.
  • Sept. 28, 2014: LedgerX applies to register as derivatives clearing organization and swap execution facility with the CFTC.
  • Oct. 9, 2014: The CFTC’s global markets advisory committee discusses its jurisdiction over derivatives contracts referencing digital currencies.
  • Oct. 29, 2014: LedgerX confirms its application.
  • Dec. 1, 2014: The CFTC requests public comments on LedgerX’s application.
  • Sept. 10, 2015: The CFTC issues  a temporary registration as a swap execution facility to LedgerX.
  • Sept. 17, 2015: CFTC takes its first action  against an unregistered bitcoin options trading platform, declaring that virtual currencies are a commodity falling under the Commodity Exchange Act.
  • Sept. 25, 2015: Mark Wetjen, a former CTFC commissioner, joins Ledger Holdings Inc., the LedgerX holding company.
  • January 2015: California becomes the first state to approve the use of bitcoin.
  • June 2015: New York becomes the first U.S. state to issue strict cryptocurrency regulations when its department of financial services released its “BitLicense.” The 44-page document provides a framework for “virtual currency” businesses to operate in the State of New York.
  • Oct. 2015: California’s General Assembly approves a bill requiring businesses that store and exchange virtual currency to be licensed.
  • Jan. 13, 2016: The CFTC appoints Paul L. Chou, CEO of LegerX, to the technology advisory committee and calls a meeting on Jan. 26, 2016 to discuss the potential application of distributed ledger technology to the derivatives market.
  • To date: LedgerX works with the CFTC to finish the evaluation phase of the LedgerX DCO application.