It is good news for crypto derivatives provider- ErisX- as they have been cleared by The U.S. Commodity Futures Trading Commission (CFTC) to provide futures contracts, following a recent licence approval.
According to an announcement by the U.S. brokerage TD Ameritrade – backed firm, the CFTC approved its derivatives clearing organization (DCO) certificate, acting as a tributary approval on top of an existing designated contract market (DCM) license that the exchange already held. The approvals will enable the firm to launch crypto futures products under the backings of the U.S. regulator. ErisX’s announcement revealed that the firm would launch its futures contracts – which would be physically-settled, meaning customers receive real bitcoin and not the cash equivalent – later in the year, although no firm timeline was given.
Clearing and Settlement Process Flow
CEO of ErisX -Thomas Chippas revealed in a recent statement that a unique quality pf the company is the fact that it divides the trading and settlement functions using traditional designated contract market (exchange) and derivatives clearing organization (clearing) models. He added that the uniqueness echoes the structure that recognized investors expect from other asset classes and will help move these markets toward more relevance and accessibility.
Following a press release, it was revealed that under the derivatives clearing organization order, ErisX will be approved to provide clearing services for fully-collateralized virtual currency futures. ErisX’s indirect parent company, Eris Exchange, LLC, is registered with the CFTC as a designated contract market. Interestingly, ErisX’s approval arises a week after top opponent LedgerX got its own designated contract market license. Like ErisX, LedgerX has not publicized a fixed timeline for the launch of its bitcoin futures contracts.
Other exchanges are making moves, as Bakkt, a branch of NYSE parent firm ICE, is also scheduling to unveil its own physically-settled bitcoin futures, and is presently waiting on a trust company license from the New York Department of Financial Services. Another crypto derivatives provider in the U.S. Seed CX, plans to put forward futures contracts in the coming months as well. In addition to its derivatives clearing organization approval, ErisX established no-action relief from the CFTC for certain aspects of its offering.
Firms apply for no-action relief when they feel like their product can fit the spirit of the law, but not essentially the letter. It is up to regulators to ascertain whether the applicants can fulfil the promise. When no-action letters are granted, the recipients must follow strictly the list of requirements laid out within. The no-action letter specifies how ErisX’s prerequisite that clients collateralize all transactions enable the CFTC to grant it relief from various provisions that seek to verify the clearinghouse can cover any losses.
According to this letter, ErisX now has relief from rules that would require it to: carry out stress testing on its fiscal resources; preserve liquidity to accomplish its responsibilities in the course of a one-day settlement cycle; require intermittent fiscal reports from all of its clearing members; conduct discrete stress testing on large traders; produce daily reports on margin payments and end-of-day positions; and detail its margin methodology.