LedgerX, a Cryptocurrency derivatives provider is planning to place itself as the first U.S. firm to offer physically settled bitcoin futures contracts.
 
As per an announcement made on Monday, the company has filed for a designated contract market (DCM) license that will enable LedgerX to offer physically-settled bitcoin futures products to its customers. The said product will give the customers actual bitcoin underlying a contract after it expires,  rather than the U.S. dollar equivalent, offered by cash-settled bitcoin futures offered by CME Group. 
 

As per Juthica Chou,  who serves as both chief risk and operating officer at LedgerX, the firm can target retail investors with its new offering. Chou added:

We’ll be able to service customers of any size, we won’t be restricted to [institutional clients].” 

Once approved, LedgerX will offer bitcoin, bitcoin options, and bitcoin futures to retail customers through a new platform, dubbed Omni. Built on LedgerX’s existing infrastructure, Omni will act as the provider for both custody and trading services.

The platform first received regulatory approval to launch in July 2017,  though the platform itself only went live later that year. LedgerX’s existing institutional liquidity pool will be used by Omni, to “offer retail customers a top tier experience from day one,” Chou said.

Chou added that launching a retail platform with futures offerings has “always been our plan”. In October 2017, when the company first began offering physically-settled derivatives products it traded $1 million in its first week. Chou said:

“Once the platform had proved stable and we got an operational cadence, we filed for a license with the CFTC. For us this is a philosophically important move because bitcoin is available to everyone and we … really wanted to make our derivatives products available to all investors as well.”

Regulatory Approvals

In November 2018, LedgerX filed for a license to offer futures contracts with the CFTC and has reportedly been engaged in a “constructive dialogue” since then, as stated by Chou. While Chou did not comment on a timeline for CFTC’s impending approval or on what sort of reception the firm is expecting from customers.

LedgerX has already been awarded granted two licenses, that enables the firm to act as a Swap Execution Facility (SEF), which is the company’s exchange platform, and a Derivatives Clearing Organization (DCO), which is the clearinghouse. 

LedgerX’s current DCM application is an additional license on top of its existing permissions and operationally the company is already set up to provide futures services, according to Chou. She continued:

“We’re custodying [bitcoin] in the same way that we currently do, we’ve obviously been live and operational for more than a year and a half, and we have a license from the CFTC, the DCO license, that allows us to custody bitcoin.”

 LedgerX has provided institutions with regulated physically-settled bitcoin swaps and options products since its launch and claims to have some 200 different firms as customers. In December 2017, CME and Cboe both began offering cash-settled bitcoin futures no other company has launched a physically-settled equivalent to date. 

Although the scenario is not such that because of lack of trying, several major firms plan to launch physically-settled bitcoin futures contracts, including Bakkt, the firm built by New York Stock Exchange parent Intercontinental Exchange;  Seed CX, the crypto exchange backed by Bain Capital Ventures; and ErisX, a startup backed by brokerage TD Ameritrade.

However, these firms are in waiting for their own regulatory approvals, giving LedgerX a shot at being the first to go live with an actual product. Chou added: 

This is a natural evolution and it stems from the fact that we’ve been operating a physically settled market for more than a year and a half so it’s been a natural [extension]. We’re always excited to be the first.”

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