The U.S. Commodity Futures Trading Commission (CFTC) has granted LedgerX, LLC registration as a derivatives clearing organization under the Commodity Exchange Act.
LedgerX is now authorized to provide clearing services for fully-collateralized digital currency swaps. LedgerX was also approved as a swap execution facility (SEF) on July 6, 2017, making it the first federally regulated SEF allowed to offer clearing services and a trading facility for options based on digital currency for the institutional market. The company was granted temporary approval to operate as such in 2015.
LedgerX plans to list and clear fully collateralized, physically settled options on bitcoin and other cryptocurrencies. SEFs operate under the CFTC’s regulatory oversight for the trading of swaps.
The commission’s division of clearing and risk also exempted LedgerX from complying with certain regulations due to its fully-collateralized clearing model.
This authorization to provide clearing services for fully-collateralized digital currency swaps does not constitute a CFTC endorsement of the use of digital currency generally, or bitcoin specifically.
LedgerX customers will be able to hedge bitcoin and other digital currencies using exchange-traded and centrally cleared option contracts, according to Reuters . LedgerX expects to initially list one- to six-month options contracts for bitcoin. Other cryptocurrency contracts such as Ethereum options are expected to follow.
Paul Chou, LedgerX CEO, said having a regulated clearinghouse will open the market to large institutions and other investors.
It took the company more than two years to gain the approval mainly because of a long education process, said Chou.
Chou said fund managers want financial instruments such as digital currency that are not correlated to the broader equity market.
LedgerX received an investment from Miami International Holdings Inc. (MIH) in December. MIH invested in LedgerX’s parent company, Ledger Holdings, and received a 10-year, exclusive global right to license equity or fixed income products related to digital currencies developed by LedgerX and to develop its own equity or fixed income derivatives based on such LedgerX products to be listed on MIAX Options and MIAX PEARL, MIH’s second options exchange.
The CFTC previously appointed Chou as a bitcoin trading expert to its technical advisory committee. The committee 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.
The CFTC officially recognized bitcoin as a commodity in September of 2015 when it took an enforcement action against a bitcoin operator for being unlicensed.
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