CFTC Approves Options Trading In Bitcoin

US regulators aren’t yet comfortable with bitcoin ETFs (although a quad-levered S&P ETF is just fine for mom and pop), but apparently options and swaps are another story.

This week, the CFTC took a bold step forward in terms of granting institutional investors access to the bitcoin market, approving the creation of the first SEF or Swap Execution Facility. Previously, traders who wished to place bets in bitcoin derivatives markets were forced to operate in markets that were strictly OTC. But now the agency has issued a registration order to LedgerX, granting it status with the CFTC as a Swap Execution Facility, in the process approving bitcoin options trading.

SEFs are platforms for swap trading that were created under Dodd-Frank to bring tighter regulatory scrutiny to derivatives markets. By authorizing the first SEF for bitcoin options, the CFTC is effectively clearing the way for institutional traders like hedge funds and CTAs to participate in those markets.

“LedgerX is an institutional trading and clearing platform which has been patiently waiting for full regulatory approval from the CFTC to trade and clear options on bitcoin.

 

It is now the first federally regulated bitcoin options exchange and clearing house which will list and clear fully-collateralized, physically-settled bitcoin options for the institutional market.

 

On December 16, 2016, Ledger Holdings and Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options Exchange, jointly announced that MIH had completed an investment in Ledger Holdings. Early investors in Ledger Holdings include Google Ventures and Lightspeed Venture Partners.”

Back in May, LedgerX closed an $11.4 million series B financing round led by Miami International Holdings Inc. (MIH) and Huiyin Blockchain Venture Investments. In return, MIH received 10-year, exclusive global rights to license equity or fixed income products related to digital currencies developed by LedgerX and to develop its own equity or fixed income derivatives based on such LedgerX products to be listed on MIAX Options and MIAX PEARL, MIH’s second options exchange.

The CFTC's approval is hardly a surprise.

According to CryptocoinsNews reports, the CFTC previously appointed Paul Chou, CEO and founder of LedgerX, as a bitcoin trading expert to its technical advisory committee. The committee advises the CFTC on the impact of technology innovations for the securities market and financial services, along with the regulatory and legislative response to the growing use of technology in the markets. So, the head of LedgerX was effectively given unfettered access to lobby the CFTC to grant his own company favorable status.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin optons trading platform. Expect a burst of institutional trading activity to follow.

The thinking here perhaps is that in a market starved for volatility, granting "big boys" the ability to trade with massive leverage on what is already the most volatile asset class in the market, is just what some funds need to make their year as they swing for the fences with 20x (or more in) margin. Instead, we fail to see how this turbocharged volatility - which will result in even more vol in the underlying the same way S&P options "traders" manipulate the underlying index - does not end in tears.

Comments

Manthong nidaar Sat, 07/08/2017 - 14:43 Permalink

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Federal regulated Bitcoin market… Just what the inventors intended ..just like the US of today is what the founders intended.

In reply to by nidaar

Eager Beaver cognitive dissident Sun, 07/09/2017 - 00:17 Permalink

I'm liking white girls at the moment, as I'm into having my nuts sucked this week, and the Asian girls are just too petite for this mouthful. Personally, I'm hoping Bitcoin does tank a bit, collapses even, Monero looks like the next best coin, once people realize the vulnerabilities of Bitcoin. A good shock or two to the network would do me good!

In reply to by cognitive dissident

Sudden Debt tmosley Sat, 07/08/2017 - 16:26 Permalink

Bitcoin is run by the bitcoin foundation. That's a central point.they can create more bitcoins then initially agreed at will. That's like a printing press.They can set any rules they want because it's a private initiative without oversight.Bitcoins are like pink slips. totally unregulated and fraudulent game tokens for Azian gamblers and a few idiots in the west who think they're smart because they used their visa to buy those game tokens online.You refuse the think rationally about it because you've put you're life savings in them and now that you're in the hole after the drop, you need this to work because you feel shame because you've been braging to all you're friends and collegues. When you think everybody is a fool, it's probably you who is.When you think everybody is stupid, it's probably you who is. 

In reply to by tmosley

cognitive dissident Sudden Debt Sat, 07/08/2017 - 20:53 Permalink

Wow, for someone that usually posts opinions here that are entertaining, insightful, and even humorous, you really haven't the foggiest clue of what you are talking about. You are out of your depth. Go educate yourself first and then come back with genuine academic discourse on this particular topic please. The nonsense you spout on this topic makes you sound like a troll with profound learning disabilities. You clearly have a brain, so use it.

In reply to by Sudden Debt

tmosley nailgunner44 Sat, 07/08/2017 - 18:10 Permalink

When exchanges collapse from manipulation, other exchanges won't allow manipulation to happen, because they don't want to collapse.People in the gold community were so fucking happy when they got a second option for gold and silver in the SGE, praying the competition would reduce corruption on the COMEX (it didin't). Well, Bitcoin is traded on DOZENS of exchanges.

In reply to by nailgunner44

aurum4040 tmosley Sat, 07/08/2017 - 22:53 Permalink

Tmosley I don't think they will understand until they see it for themselves. You and few others here including myself actually have taken the time to thoroughly and just about fully grasp crypto and it's implications. Others seemingly pretend to understand while talking it down, probably because they missed the one of the two best if not the best trade of their lives. And they live in denial. 

In reply to by tmosley

Bunga Bunga BaBaBouy Sat, 07/08/2017 - 15:09 Permalink

Welcome to the HELL of PAPER Gold & Silver...The difference is that these options imply the possesion of it, which is simple because a substantial amount of gold and silver is stored with brokers, warehouses, custodians and central banks. In contrast, most Bitcoins are stored in private wallets, not kept in exchanges or vaults. Even if, the withdrawal is very easy, cheap and quick and people are very cautious, because exchanges can be hacked. Trading options on Bitcoin is like trading options on moon sand, so there will be only a marginal impact on price.

In reply to by BaBaBouy

aurum4040 Bunga Bunga Sat, 07/08/2017 - 23:17 Permalink

Please explain how it is the same. Does actual physical tangible gold trade on an irreversible distributed ledger? No it does not and that is exactly why gold and silver are so easily manipulated. They are no checks and balances other then the CFTC. The checks and balances in the ledger, in the blockchain are immense and litterally every single person who mines, who trades, who develops DaPPs, etc. It cannot be manipulated because every one would see it among those dozen exchanges and nodes? Do you have direct access to the CFTC? No you dont? Do I have direct access to Ethereum? Yes I do. In fact I am going to develop my own node shortly. 

In reply to by Bunga Bunga

Praeda2 Bunga Bunga Sun, 07/09/2017 - 01:30 Permalink

You do know that carbon credits are futures in hot air right? hahaha"so there will be only a marginal impact on price."Just keeping repeating that to yourself as you watch the price collapse.You think these guys have waited patiently and spent millions of dollars to do this so they could have a, 'marginal impact on price'? Oh you silly, silly, naive, little boy.

In reply to by Bunga Bunga