Bitcoin Futures Get Green Light, Will Start Trading On December 18

And there it is folks, the news the Bitcoin faithful have been waiting for – even if they didn’t realize it: Bitcoin futures from the CME and the Cboe have received the go ahead.

Here’s a fun CNBC screengrab you can frame for posterity:

Bitcoin

“[We have] worked with CME Group and Cboe Global Markets  to ensure they set an appropriate standard for oversight over these bitcoin contracts,” CFTC Chairman Chris Giancarlo says.

Further, the CFTC is claiming that “rigorous discussions” led to “improvements” in the design and settlement process for the contracts.

Bitcoin looks to have gotten a lift from the news:

Bitcoin2

There were some cautionary notes however, like this one:

Market participants should take note that the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority.

And this one:

There are concerns about the price volatility and trading practices of participants in these markets.

But who cares about that, right?

Additionally, as tipped earlier this week, Cantor Exchange is going to introduce binary options on Bitcoin (because nothing sounds safer than binary Bitcoin options).

So this sets the stage for the pros to get into the game. The idea here is that now that regulated exchanges are involved, institutional money’s interest will be piqued (as if it wasn’t already) and assuming everything goes well, Bitcoin ETFs could proliferate.

As usual, the question is this: “what could go wrong?”

Full statement from CFTC

Washington, DC — Today, the Chicago Mercantile Exchange Inc. (CME) and the CBOE Futures Exchange (CFE) self-certified new contracts for bitcoin futures products, and the Cantor Exchange (Cantor) self-certified a new contract for bitcoin binary options.

“Bitcoin, a virtual currency, is a commodity unlike any the Commission has dealt with in the past,” said CFTC Chairman J. Christopher Giancarlo. “As a result, we have had extensive discussions with the exchanges regarding the proposed contracts, and CME, CFE and Cantor have agreed to significant enhancements to protect customers and maintain orderly markets. In working with the Commission, CME, CFE and Cantor have set an appropriate standard for oversight over these bitcoin contracts given the CFTC’s limited statutory ability to oversee the cash market for bitcoin.”

“Market participants should take note that the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority. There are concerns about the price volatility and trading practices of participants in these markets. We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms for potential impacts on the futures contracts’ price discovery process, including potential market manipulation and market dislocations due to flash rallies and crashes and trading outages. Nevertheless, investors should be aware of the potentially high level of volatility and risk in trading these contracts.”

Commission staff held rigorous discussions with CME over the course of six weeks, CFE over the course of four months, and had numerous calls with Cantor. CME, CFE and Cantor agreed to significant enhancements to contract design and settlement, and CME to margining, at the request of Commission staff, as well as more information sharing with the underlying cash bitcoin exchanges to assist CME, CFE, Cantor and the CFTC in surveillance. The Commission, CME, CFE and Cantor will also coordinate to the extent possible in any surveillance activities, including providing the CFTC with additional surveillance information.

As trading on these DCMs evolves, the Commission will continue to assess whether further changes are required to the contract design and settlement processes and work with the DCMs to effect any changes.

Once the contracts are launched, Commission staff will engage in a variety of risk-monitoring activities.  These activities include monitoring and analyzing the size and development of the market, positions and changes in positions over time, open interest, initial margin requirements, and variation margin payments, as well as stress testing positions.  Commission staff will additionally conduct reviews of designated contract markets, derivatives clearing organizations (DCOs), clearing firms and individual traders involved in trading and clearing bitcoin futures.

The CFTC will also work closely with the National Futures Association (NFA). NFA has issued an investor advisory on this topic to its members, including futures commission merchants and introducing brokers that are involved in the trading of any virtual currency futures product, and will closely monitor its member firms trading this product. If the Commission determines that the margin the DCOs hold against bitcoin futures positions is inadequate, it can take measures to require that the margin held at the DCOs be increased, including requiring that they use a longer margin period of risk to generate margin requirements.

As with all contracts offered through Commission-regulated exchanges and cleared through Commission-regulated clearinghouses, the completion of the processes described above is not a Commission approval. It does not constitute a Commission endorsement of the use or value of virtual currency products or derivatives.  It is incumbent on market participants to conduct appropriate due diligence to determine the particular appropriateness of these products, which at times have exhibited extreme volatility and unique risks.

The Commission, pursuant to its statutory mission, will continue to foster open, transparent, competitive and financially sound markets. The CFTC will monitor markets and work closely with the exchanges to avoid systemic risk and to protect market users and their funds, consumers and the public from fraud, manipulation and abusive practices related to products that are subject to the Commodity Exchange Act.

Full statement from the CME

CHICAGODec. 1, 2017 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, today announced that it has self-certified the initial listing of its Bitcoin futures contract to launch Monday, December 18, 2017.

“We are pleased to bring Bitcoin futures to market after working closely with the CFTC and market participants to design a regulated offering that will provide investors with transparency, price discovery, and risk transfer capabilities,” said Terry Duffy, CME Group Chairman and Chief Executive Officer.  “Though we have worked through a lengthy, comprehensive process with the CFTC to get to this point, we recognize bitcoin is a new, uncharted market that will continue to evolve, requiring continued collaboration with the Commission and our clients going forward.  At launch, our new Bitcoin futures contract will be subject to a variety of risk management tools, including an initial margin of 35 percent, position and intraday price limits, and a number of other risk and credit controls that CME Group offers on all of its products.”

The new contract will be listed on and subject to the rules of CME.  It will be available for trading on the CME Globex electronic trading platform, and for submission for clearing via CME ClearPort, effective on Sunday, December 17, 2017 for a trade date of December 18.

CME Group’s Bitcoin futures will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.  Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. The BRR is designed around the IOSCO Principles for Financial Benchmarks. Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.

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