CFTC Provides New Cryptocurrency Derivatives Guidance
New guidance for companies offering cryptocurrency derivatives, namely exchanges and clearinghouses, has been released by the US Commodity Futures Trading Commission (CFTC). A CFTC press release published Monday contained information regarding new guidance and recommendations. The CFTC’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) provide explanations of regulations surrounding crypto derivative products.
The main areas the guidance addresses are risk management and governance, large trader reporting, market surveillance, and coordination with CFTC members. According to DMO Director Amir Zaidi:
“The CFTC staff is committed to providing regulatory clarity as much as possible. As the virtual currency market continues to evolve, CFTC will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”
The press release also stresses the importance of “. . . market participants follow[ing] appropriate governance processes with respect to the launch of these products.”
This development comes soon after CME Group and UK-based crypto trading service Crypto Facilities partnered to offer an ether reference rate and a real-time ethereum price index. Crypto Facilities launched the first regulated ethereum futures contracts about two weeks ago, and some speculate that CME Group will offer ether futures soon as well.
CFTC enforcement director James McDonald echoed the words of many regulators at Consensus 2018 last week, saying they want to avoid “hindering innovation.” According to McDonald, “Our mission is to foster financially sound markets, and we understand as a regulator that requires a certain amount of [flexibility] in our approach.”
In March, the EU started imposing more stringent rules regarding certain crypto derivatives, such as contracts for difference. As the cryptocurrency market matures, more regulations will surface, especially surrounding derivative instruments such as futures, contracts for difference, and options, as well as around instruments such as ETFs.