The Commodity Futures Trading Commission (CFTC) has approved has allowedbitcoin derivatives provider LedgerX to offer physically settled bitcoin futures contracts. In an announcement released on Tuesday, the CFTC disclosed that LedgerX requested that its order of registration is amended as aDCO. This will limit LedgerX to clearing swaps, to allow it to clear futures listed on its DCM. LedgerXis a Delaware limited liability company located in New York City, and a wholly-owned subsidiary of Ledger Holdings, Inc.
Following the approval of LedgerX’s application for a designated contract market (DCM) license, the company can now offer the new futures contracts. This is the second time that the CFTC has issued an approval for the offering of physically settled bitcoin futures. Now, other companies like Intercontinental Exchange’s Bakkt, Seed CX and ErisXare showing an interest to enter this market. In the case ofBakkt’s own futures contracts they have been self-certified, and the firm is waiting for the New York Department of Financial Services to license its warehouse.
LedgerX’sphysically settled bitcoin futures contracts differ fromthe cash-settled bitcoin futures listed by the Chicago exchanges Cboe and CME. With physically settled futures the buyer doesn’t receive rather the fiat equivalent but the underlying commodity when a contract expires.
The approval of the CFTC gives LedgerX the green lights to not only list these bitcoin futures contracts but crucially can offer its products to retail clients, not just institutional ones.
“Ultimately the products are not that economically different than what we’re already offering … but this would open up to a broader [market].”
Previous announcements from Bakkt showed that the company had an interest in testing its own physically-settled bitcoin futures contracts in July, it is yet to announce a launch date. Seed CX and ErisX have also not yet announced when they would launch their futures products.
LedgerX applied for the DCM in November 2018 and has worked closely with the CFTC throughout the entire application process. As of publication, it already offers swaps and options contracts for customers.
The DCM application follows LedgerX’s existing Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) licenses. These approve the company’s exchange platform and clearinghouse, respectively.
As a next step in the company’s development, LedgerX is now planning a gradual rollout of its new products. A retail-focused Omni platform will expand on its offering and target market.
“We want to be careful and conservative so we’ll soft-launch the Omni product,” she said. “We’ll take customer feedback and we’ll make sure it works.”Chou added.
The company will make its existing swaps and options product available to all customers. It will also roll out a new block height option product that was recently self-certified.
“We have a pretty extensive waitlist and we’ll work through that until we feel comfortable”
LedgerX is yet to announce when the new futures will be made available with the intention of being the first provider of this product in the U.S.
LedgerX would follow the same self-certification process that it already underwent to offer swaps and options, Chou said, adding:
“There’s no doubt that we’re looking to be first, we’re looking to be the incumbent. We think we’re better positioned and we want to be there to serve customers of all sizes.”