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CFTC Issues Advisory on Cryptocurrency Derivatives

The Commodity Futures Trading Commission has issued an advisory to stock exchanges and clearing houses on the listing virtual currency derivative products.

The body is seeking to clear the air on the vetting process regarding virtual currency contracts.

Some of the key areas highlighted in the advisory include market surveillance, large trader reporting, outreach to member and market participants, risk management and governance.

The guidelines were published Monday by the Division of Market Oversight and the Division of Clearing and Risk (DCR).

“The CFTC staff is committed to providing regulatory clarity as much as possible,” said DMO Director Amir Zaidi. “As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations,” he added.

CFTC says the advisory is meant to guide market participants as they design risk management procedures that come with virtual currency products.

“In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.” DCR Director Brian Bussey said in a statement.

Guidance of Listing Derivative Contracts

The advisory gives guidance when listing derivative contracts based on virtual currencies. it also provides CFTC’s priorities when reviewing derivatives to be listed on contract markets, swap execution facility or to be cleared in a derivatives clearing organisation.


CFTC has previously taken action against unregistered bitcoin futures exchanges. The regulator also enforces laws against wash trading and prearranged trades on derivatives platforms.

CME recently announced plans to provide a reference rate and real time price index for ether. The price index and reference rate will be calculated by UK’s Crypto Facilities, the first company to launch ethereum futures contracts.

CME launched its own bitcoin futures contracts in December. The high volatility in the cryptocurrency market however raised concerns with the futures industry association asking the CFTC to scrutinize virtual currency derivatives to be traded.

A recent report attributed the cryptocurrency market decline to the introduction of the bitcoin futures contracts. The Federal Reserve Bank of San Francisco noted that the could have provided an opportunity for pessimistic traders to short the market.

“The guidance announced today is another effort to ensure the CFTC is exercising appropriate oversight while encouraging innovation and growth in these products,” CFTC said in a statement.

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