On Tuesday, June 25 2019, the CFTC (Commodity Futures Trading Commission) cleared LedgerX to allow bitcoin futures contracts that are physically settled.
The CFTC approved an application submitted by LedgerX for a DCM (Designated Contract Market) license. This entitles LedgerX to offer new bitcoin futures contracts.
LedgerX is only the 2nd firm to be licensed to offer physically settled bitcoins. While ICE’s (Intercontinental Exchange) Bakkt has launched user testing for bitcoin futures, they are yet to announce an official launch date. Bakkt is also waiting for its customs warehouse license to be approved. Few other companies, including ErisX and Seed CX are also planning on entering this market. However, Seed CX and ErisX are yet to announce when they will launch their futures products and forwards.
What makes physically settled futures contracts different?
Unlike the bitcoin futures offered by CME and Cboe that are cash settled, LedgerX and Bakkt’s bitcoin futures are physically settled. In physically settled bitcoin futures, buyers will receive actual bitcoins when the contract expires instead of fiat equivalents of the price.
The approval means that LedgerX can list physically settled bitcoin futures contracts as well as offer products to retail and institutional clients both.
LedgerX has not offered an official timeline when it will start to offer futures. However, Risk Officer and Chief Operating Officer, Juthica Chou said that the firm was aiming to be the first to offer this product in the US. The firm believes that they are better positioned compared to the competition and will be able to serve customers of all sizes.
Furthermore, LedgerX is going to follow the same self-certification procedure that was previously used to offer options and swaps.
A process that took months
It has taken LedgerX quite a few months to get their license approved. Having submitted their application back in November 2018, the firm has been working closely with the CTFC to get themselves approved.
LedgerX already offers options contracts and swaps for its customers. This application comes on top of the existing DCO (Derivatives Clearing Organization) and SEF (Swap Execution Facility) licenses that approve the firm’s clearing house and exchange platform respectively.
Chou added that the new license carries as much responsibility as the other two licenses. However, she did admit that securing this approval was lengthy and difficult because of the issues involved.
LedgerX is now gradually rolling out new products and it is expected to release the Omni platform which will be retail focused. Chou mentioned that the firm wants to be conservative and careful and they will be soft launching the Omni Platform. The company is hoping to take extensive customer feedback to make the product work.
This approval, which happened only a day after bitcoin hit 15-month high, hints that the CFTC is becoming more and more open to cryptocurrencies. LedgerX is enjoying a good amount of success and this will likely be emulated by other firms as well.