CME Gives Details, Regulator Pushes Back

Lily Katz reports CME’s head of equity products, Tim McCourt, detailing of coming bitcoin futures. Mr. McCourt “said the exchange has put safeguards such as higher margin levels and limits on positions and prices in place to curb risks on the bitcoin futures it plans to offer,” she noted.

Chicago Mercantile Exchange Group Inc (CME) left a cryptic note atop its more detailed explanation of how bitcoin futures would be rolled out. Red emblazoned, it stated: “Effective Q4 2017, and pending all relevant regulatory review periods, please be advised that CME will launch Bitcoin futures.” Q4, the last three months of the year, is upon us, and it turns out the key phrase in that highlighted sentence might be “pending all relevant regulatory review periods.”

CME Gives Precious Bitcoin Futures Detail

Bitcoiners the world over anticipate the entrance of CME to the ecosystem. Chicago Merc was founded just prior to the turn of the 20th century, and rests comfortably now as the largest futures exchange in the world some one hundred and twenty years later.

CEO of Bit Go Mike Bleshe, however, is quoted as saying he’s “skeptical they’ll launch this year,” as legacy business might “not be comfortable with bitcoin futures yet,” Ms. Katz paraphrases him predicting.

CME plans normal daily settlement for bitcoin futures will be “based on trading activity on CME Globex between 15:59:00 and 16:00:00 London time.” In three tiers, the company outlined trades (1), market data (2), and the absence of two-sided markets (3).

In the first, “All contract months settle to the volume-weighted average price (VWAP) of outright trades… rounded to the nearest tradable tick. If the VWAP is equidistant between two ticks it will be rounded towards the prior day.”

Tier 2, “In the absence of trades during the settlement period, the contract month settles to the midpoint of the Bid/Ask between 15:59:00 and 16:00:00.” If no “two sided markets are available during the settlement period in a particular contract month, then the settlement price will be the net change of the CME Bitcoin Reference Rate added to the prior day futures contract settlement (provided that settlement is within the Bitcoin futures price limits), adjusted to the Bid/Ask if one side is present,” CME explained.

Push Back

While a great many bitcoiners might be excited about futures, the main regulator, the Commodity Futures Trading Commission (CFTC), seems less than enthusiastic. According to Benjamin Bain, “While the agency has limited power to halt CME’s plans… it is demanding changes.”

Mr. Bain explains CFTC has been working to “address various issues, and to change some aspects of the contracts,” he quotes Erica Elliott Richardson, CFTC spokeswoman. “We expect that outstanding issues will be resolved in the near future,” she noted.

Ms. Richardson revealed “concerns about bitcoin futures expressed by some market participants” has played a role in closer examination. She might be referring to the full page ad taken by Interactive Brokers Group addressed to the CFTC Chairman from Thomas Peterffy. He argued nothing less the entire futures clearing market could be vulnerable with bitcoin in the mix.

Ms. Richardson of the CFTC continued: “Once the contracts are launched, commission staff will engage in a variety of risk-monitoring and oversight activities. These activities include monitoring and stress testing positions and observing and analyzing open interest, initial margin requirements, and variation margin payments.”

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