The U.S. Commodity Futures Trading Commission (CFTC) grants a license to crypto derivatives provider ErisX, that will enable it to offer futures contracts as per the announcement by the firm.
Backed by U.S. brokerage TD Ameritrade, ErisX already had a designated contract market (DCM) license and the new derivatives clearing organization (DCO) license will enable the exchange to launch crypto futures products under the auspices of the U.S. regulator. Though the firm did not disclose a firm timeline, ErisX did state in its announcement that it would launch its futures contracts “later this year.”
The futures contracts will purportedly be physically-settled i.e. customers will receive real bitcoin and not the cash equivalent. Thomas Chippas, ErisX CEO said in a statement that the company is “unique” because it “divided the trading and settlement functions using traditional DCM (exchange) and DCO (clearing) models.” He added:
“This reflects the structure that institutional investors expect from other asset classes and will help drive these markets toward greater relevance and accessibility.”
The CFTC press release stated:
“Under the DCO order, Eris will be authorized to provide clearing services for fully-collateralized virtual currency futures. Eris’ indirect parent company, Eris Exchange, LLC, is registered with the CFTC as a designated contract market.”
Notably, ErisX earns the approval a week after its competitor LedgerX received its own DCM license. Similar to ErisX, LedgerX has also not yet announced a firm timeline for the launch of its bitcoin futures contracts.
A subsidiary of NYSE parent firm ICE, Bakkt also plans to launch its own physically-settled bitcoin futures, though the platform is still awaiting its trust company license from the New York Department of Financial Services. Another crypto derivatives provider in the U.S., Seed CX hopes to offer forwards contracts in the coming months as well.
No-action relief
Along with the DCO approval, ErisX also received no-action relief from the CFTC applicable to certain aspects of its offering. Notably, the no-action relief is applied when the company believes that its product can fit the spirit of the law, but not necessarily the letter. In such a scenario the regulators will determine whether the applicants can fulfill that promise.
With the no-action letter, it is granted that the applicants must adhere strictly to the list of requirements laid out within. Specifically, the CFTC Division of Clearing and Risk granted ErisX relief from aspects of Part 39 of the Code of Federal Regulations Title 17. The letter details how ErisX’s requirement that customers collateralize all transactions enable the CFTC to grant it relief from various provisions that seek to verify the clearinghouse can cover any losses.
As per the letter, ErisX has relief from regulations that would require it to – conduct stress testing on its financial resources; maintain liquidity to fulfill its obligations during a one-day settlement cycle; require periodic financial reports from all of its clearing members; conduct individual stress testing on large traders; produce daily reports on margin payments and end-of-day positions; and detail its margin methodology.
Since ErisX does not allow for margin positions, the Division of Clearing and Risk has agreed to provide relief against these different sections of Part 39. ErisX will also certify its futures contract market participant rules prior to launch.
The ErisX head of marketing Jessica Darmoni adds in a statement:
“Prior to onboarding FCMs, ErisX must first certify to the CFTC that its FCM rules comply with the CEA and commission rules and provide market participants and CFTC an opportunity to review the rules. We have already begun the work in this regard and look forward to working with the CFTC on these requirements.”
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