Photo Credit To Pavlos Giorkas Via Flickr
TD Ameritrade Backed “ErisX”
At the start of July, ErisX announced they had acquired approval from the CFTC to launch futures products based on crypto. The futures contracts are going to be physically settled. This means customers of the platform will get actual BTC and not their cash equivalent.
What the CEO Had to Say
According to the CEO of ErisX, the parent company of the trading platforms, this product will be unique since it will divide the settlement and trading functions with the use of traditional DCO and DCM clearing models. He further stated that this was a reflection of what investors expected.
With the DCO license, the platform would be able to offer clearing services for collateralized crypto futures. According to the CFTC, the Eris Exchange, LLC, was designated as a contract market. Despite getting the license, the futures contracts have not yet been issued. ErisX is not the only firms to get such a license. LedgerX and Bakkt also have a similar license. Another company that offers such a service is Seed CX.
Besides the DCO license, the company also received no-action relief. This will apply to various aspects of the offering. No action relief is given to a company when it believes their product fits the spirit of the law while not necessarily adhering to the letter of the law. The regulator usually determines whether an applicant can fulfill the promise. When the CFTC issues no-action relief, the company that gets it has to adhere to strict requirements issued. This makes sense since there are no federal rules that directly address crypto.
Specifically, the relief was issued for various aspects of Part 39 of the Federal Regulations Title 17. According to the letter from the CFTC, ErisX will gain relief from certain provisions, which want to verify the clearinghouse is able to cover losses, that arises.
ErisX will gain relief from regulations that require them to conduct stress tests on financial resources, fulfill obligations of liquidity for a single-day cycle, and require regular reports for all clearing members. Additionally, the company gained relief from conducting stress testing for major traders as well as producing daily reports or margin payments and end-day positions.
The Entry of Futures into the Crypto Market
Futures contracts are financial instruments called derivatives. With futures, a trader is able to speculate on the price of the assets without the need to own it. With BTC futures, traders are able to buy and sell these contracts without the need to own BTC.
This is important development has been around for a while now. Since the price of crypto is so volatile, many large investors might not be willing to invest directly in it. Futures give them the opportunity to take part in the crypto market while still minimizing risk.
However, with time, some of them could develop an interest in the underlying asset. As a result, futures are a positive development for the crypto market. They help major market participants understand crypto, which could help the industry grow.