LedgerX, the New York-based institutional trading and clearing platform for digital currencies, has been granted US Commodity Futures Trading Commission (CFTC) approval to operate the first US federally-regulated exchange and clearing house for derivatives contracts settling in digital currencies.
LedgerX is now authorised as a derivatives clearing organisation (DCO) under the Commodity Exchange Act (CEA) to provide clearing services for fully-collateralised digital currency swaps. LedgerX, which was also granted an order of registration as a Swap Execution Facility on 6 July, 2017, initially plans to clear bitcoin options.
Participants in the LedgerX venue will be able to obtain and hedge bitcoin and other digital currencies using exchange-traded and centrally-cleared options contracts. Initially, LedgerX anticipates listing one to six-month options contracts for bitcoin (BTC). Other digital currency contracts such as Ethereum (ETH) options, are expected to follow.
Eligible participants in the LedgerX venue will include registered broker dealers, banks, futures commission merchants, qualified commodity pool entities and qualified high net worth investors.
“A US federally-regulated venue for derivative contracts settling in digital currencies opens the market to a much larger customer base,” says Paul L Chou (pictured), CEO, LedgerX. “We are seeing strong demand from institutions that previously could not participate in the bitcoin market due to compliance restrictions against unregulated venues,” added Chou. “In particular, there is a desire for fund managers to hold financial instruments that are not correlated with the broader equity market, and digital currencies meet that need,” concludes Chou.
The terms and conditions of the CFTC order require, among other things, that LedgerX comply with applicable provisions of the CEA, including the core principles set forth in Section 5b of the CEA, and with Commission regulations. LedgerX also must fulfil each of the representations it has made to the Commission relating to compliance with the core principles and Commission regulations.
In response to a request from LedgerX, the Commission’s Division of Clearing and Risk has also issued a letter exempting LedgerX from complying with certain Commission regulations due to LedgerX’s fully-collateralised clearing model.
This authorisation to provide clearing services for fully-collateralised digital currency swaps does not constitute or imply a Commission endorsement of the use of digital currency generally, or bitcoin specifically.
