REGULATION

CFTC to discuss virtual currency regulation

CFTC to hold public discussion on future of virtual currency regulation and self-certification.

By John Brazier john.brazier@thetradenews.com January 05, 2018 2:20 PM GMT

The top US derivatives regulator will hold a public meeting later this month to discuss the statutory and regulatory process for the listing of new digital currency products on exchanges.

The Market Risk Advisory Committee (MRAC) of the US Commodity Futures Trading Commission (CFTC) is to hold a public meeting to assess the risks of the products on CFTC-regulated designated contract markets (DCMs) and swap execution facilities (SEFs) through self-certification. 

The meeting on 31 January will be open to the public and feature a number of CFTC personnel providing an overview of the current self-certification process and CFTC authorities and responsibilities related to the oversight, surveillance, and monitoring of listed derivatives products within CFTC jurisdiction.

Virtual currencies exploded in popularity throughout the second half of 2017, the most notable of which is bitcoin, which has attracted the attention of institutional investors, paving the way for new trading venues and funds to spring up.

"Undoubtedly, virtual currency and virtual currency derivatives present both significant opportunities and challenges,” said chairman of the CFTC, J. Christopher Giancarlo. “As a Federal market regulator, the CFTC is cognizant of the considerable risks of virtual currencies like bitcoin.” 

Giancarlo highlighted significant risks associated with virtual currencies as a nascent technology, such as cyber security concerns of hackers targeting trading platforms and virtual currency wallets, as well as the operational risks associated with unregulated and unsupervised trading platforms, and market abuse practices.

"One thing is certain: ignoring virtual currency trading will not make it go away,” he added. “Nor is it a responsible regulatory strategy. The CFTC has an important role to play.”

The CFTC has considered virtual currencies such as bitcoin as a commodity subject to oversight under its authority under the Commodity Exchange Act since 2014. On 1 December last year, the CFTC released a warning to the industry on virtual currency self-certification as the Chicago Mercantile Exchange (CME) and the CBOE Futures Exchange (CFE) both launched bitcoin futures venues in late 2017.

“With the rapid development of financial technology products – including cryptocurrencies – and the corresponding demand for new and novel price discovery and risk management tools, the CFTC is poised to utilise its authority and expertise to ensure that the markets we oversee innovate responsibly within an appropriate oversight framework,” said CFTC commissioner, Rostin Behnam. “I believe this is a perfect time for the MRAC to discuss the application of the CFTC's self-certification process in today's quickly evolving, technology driven marketplace.”