US regulator to allow CME, CBOE to list bitcoin futures

WASHINGTON: The main US derivatives regulator said on Friday it would allow CME Group Inc and CBOE Global Markets Inc to list bitcoin futures contracts, opening the door to added regulation and more mainstream adoption of the cryptocurrency.

The announcement by the Commodity Futures Trading Commission (CFTC) paves the way for CME and CBOE to become the first traditional US-regulated exchanges where bitcoin-related financial contracts can trade.

CME, the world’s largest derivatives exchange, said it would list its bitcoin futures contract on Dec 18. CBOE said it would set a launch date in the near future. Both contracts will be priced against and settled in the cash bitcoin market.

The bitcoin underlying the futures contracts will still be traded on lightly regulated over-the-counter markets. Still, putting futures contracts on highly scrutinised US exchanges could convince other regulators to allow more cryptocurrency-derived products such as exchange-traded funds.

So far, the US Securities and Exchange Commission has not allowed bitcoin-based ETFs on the CBOE or elsewhere, partlybecause of concerns around the unregulated aspect of bitcoin.

CBOE will return to the SEC with its ETF application as liquidity builds in futures contracts and the exchanges demonstrate how their oversight of the underlying market works, the exchange operator’s CEO Ed Tilly said in an interview. “I would anticipate then you’ll see a great many applications for notes and funds that are tracking or holding crypto” currencies.

CFTC chairman Christopher Giancarlo warned investors that the nascent underlying bitcoin cash markets remained largely unregulated and mostly beyond the commission’s purview.

The futures exchanges must coordinate to help spot market manipulation, flash rallies, trading outages and other problems on the unregulated exchanges where bitcoin is traded, he said in a statement.

“Nevertheless,” he added, “investors should be aware of the potentially high level of volatility and risk in trading these contracts”.

CME and CBOE have agreed to enter into information-sharing agreements and send the CFTC data on the settlement process.

Bitcoin’s price has soared tenfold this year, but many market participants warned of a bubble last week as it topped US$11,000 (RM44,990) for the first time.

To guard against volatility, CME and CBOE will enact stricter-than-usual riskmanagement safeguards, including initial margin requirements of 35% to 40%. – Reuters