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CFTC Issues Advisory to “Virtual Currency Derivative Product Listings”

CFTC | Advisory | Virtual currencies | Cryptocurrencies | Cryptocurrency updates

The US Commodity Futures Trading Commission (CFTC) has issued a new guidance for exchanges and clearinghouses that want to list cryptocurrency derivative products. The cryptocurrency space has been riddled with concerns about the vetting process for contracts, like bitcoin futures, and the CFTC is looking to clear the air.

In a joint staff advisory, the agency’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) have offered CFTC-registered companies advice on how to comply with rules when listing financial derivatives based on cryptocurrency. CFTC staff generally believes that the advisory should help companies effectively and efficiently discharge their statutory and self-regulatory responsibilities, while keeping pace with the unique challenges of emerging crypto derivatives.

DMO Director Amir Zaidi said,

“The CFTC staff is committed to providing regulatory clarity as much as possible. As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

The Advisory is not a compliance “checklist” but seeks to clarify the CFTCs expectations as the cryptocurrency market evolves. The Advisory is said to help exchanges while keeping pace with emerging virtual currency derivatives.

Both the CBOE and CME currently trade Bitcoin futures contracts and were the first regulated derivative products. More derivatives targeting other virtual currencies of other derivative products may follow as the cryptocurrency market grows and evolves. This Advisory may foreshadow a move to add new products.

The guidance provided includes the following:

  • enhanced market surveillance
  • coordination with CFTC staff
  • large trader reporting
  • outreach to stakeholders
  • DCO risk management

In 2015, the CFTC found virtual currencies such as Bitcoin to be commodities subject to oversight under its authority under the Commodity Exchange Act (CEA). Since then, the CFTC has taken action against unregistered Bitcoin futures exchanges.

CFTC Commissioner Rostin Behnam said the advisory is another step in providing the public with greater transparency into the process of listing crypto derivative products. Behman said,

“While this staff advisory clarifies expectations, it does not equate a change to the regulatory process. Such changes require a more fulsome and formal process, subject to Commission deliberation and public notice and comment. I look forward to continuing to explore our options, which I hope will include some parameters for determining when self-certification may not be appropriate, and for determining when such matters are appropriately brought before the Commission.”

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