US: CFTC Seeks to ‘Provide Regulatory Clarity’ for Listing Virtual Currency Derivatives

The U.S. Commodity Futures Trading Commission (CFTC) has issued an advisory statement for listing virtual currency derivative products, according to a CFTC press release published yesterday, May 21. The advisory statement is aimed at providing clarity for exchanges and clearing houses.

The staff advisory, which was jointly issued by the CFTC’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR), focuses on the specific areas involved in listing virtual currency derivatives on a designated contract market or swap execution facility. It covers the necessity for more market surveillance, coordination with CFTC staff, large trader reporting, and DCO risk management and governance.

Amir Zaidi, the director of the DMO, said in the press release that “the CFTC staff is committed to providing regulatory clarity as much as possible,” continuing:

“CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

Marco Santori, President and Chief Legal Officer crypto wallet service Blockchain.com, tweeted a thread of commentary yesterday on the CFTC’s joint statement, pointing out that since the CFTC “keeps discretion as to what threshold constitutes a Large Trader in the crypto context. [It will be] interesting to see where that leads.” Santori’s main takeaway is a comparison of the CFTC’s ability to simply post guidelines for crypto derivatives, while the U.S. Securities and Exchange Commission (SEC) is faced with the more difficult task of deciding whether or not to define tokens and coins as securities:

14/ Not only is it harder from a practitioner's standpoint, but it's also far, far more political. It could move a lot of cheese, so to speak. So, while the issues before the CFTC aren't simple, the consequences for getting it wrong are much, much worse on the securities front.

— Marco Santori (@msantoriESQ) May 22, 2018

Last week, the SEC launched a mock Initial Coin Offering (ICO) website to show investors the warning signs for typical scams and fraud. The SEC and CFTC also held a joint hearing on cryptocurrency in early February. The hearing concluded that the two organizations need to work together on regulating the crypto market, with ICOs needing the most stringent framework, and virtual currencies and digital ledger technologies like blockchain the least.

Yesterday, U.S. and Canadian securities regulators announced “Operation Cryptosweep,” a joint series of probes into fraudulent crypto investment programs.