CFTC Issues Advisory with Regards to “Virtual Currency Derivative Product Listings”

The Commodity Futures Trading Commission (CFTC) has issued an Advisory pertaining to “virtual currencies” and “derivative product listings.”

The CFTC staff states:

“Commodity Futures Trading Commission (“CFTC” or “Commission”) staff believes it is important to encourage innovation and growth in these products, but within an appropriate oversight framework that enables exchanges and clearinghouses to operate within the confines of the core principles. To this end, Commission staff continues to monitor developments in these products and discuss the risks and challenges they present with industry and market participants.”

The CFTC notes that it virtual currencies are “unlike any commodity” it has dealt with in the past and thus more difficult to provide context. As the market matures, greater clarity may emerge.

“The CFTC staff is committed to providing regulatory clarity as much as possible,” said DMO Director Amir Zaidi. “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:

(A) enhanced market surveillance

(B) coordination with CFTC staff

(C) large trader reporting

(D) outreach to stakeholders

(E) DCO risk management

CFTC Commissioner Behnam issued the following statement following the release of the Advisory;

“Today, the Division of Market Oversight and the Division of Clearing and Risk issued a CFTC staff advisory regarding Virtual Currency Derivative Product Listings.  I support and commend the staff, under the direction of the Chairman, for providing this advisory regarding the listing process.  In January, I sponsored a meeting of the Commission’s Market Risk Advisory Committee to shine a light and promote inclusive dialogue on the Commission’s role in the listing of new products pursuant to the Commodity Exchange Act and Commission Regulations 40.2 and 40.3.  Today’s advisory is another step in providing the public with greater transparency into this process.  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.”

The Advisory is embedded below.

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