The Commodities Futures Trading Commission took another step toward standardizing the process of self-certification of crypto-currency derivatives.
“The CFTC’s Market Risk Advisory Committee (MRAC), sponsored by CFTC Commissioner Rostin Behnam, has today announced that it will hold a meeting on January 31, 2018 to consider the process of self-certification of new products and operational rules by Designated Contract Markets (DCMs) under the Commodity Exchange Act (CEA) and CFTC regulations,” CFTC’s Chairman Christopher Giancarlo noted in a statement. “The MRAC meeting is scheduled to take place the week after a January 23, 2018 meeting of the CFTC Technology Advisory Committee (TAC), sponsored by CFTC Commissioner Brian Quintenz, which will consider the related challenges, opportunities, and market developments of virtual currencies. Both the MRAC and TAC January meetings are timely and have the support of the full Commission. My fellow Commissioners and I look forward to thorough and thoughtful discussions.
“Undoubtedly, virtual currency and virtual currency derivatives present both significant opportunities and challenges. As a Federal market regulator, the CFTC is cognizant of the considerable risks of virtual currencies like Bitcoin. In addition to the nascent stage of the technology itself, risks associated with virtual currencies include: operational risks of unregulated and unsupervised trading platforms; cybersecurity risks of hackable trading platforms and virtual currency wallets; speculative risks of extremely volatile price moves; and fraud and manipulation risks through traditional market abuses of pump and dump schemes, insider trading, false disclosure, Ponzi schemes and other forms of investor fraud and market manipulation.”
When Amir Zaid, the head of CFTC’s Division of Market Oversight appeared with Andrew Busch, CFTC’s Chief Market Strategist on Busch’s podcast, he explained the process of self-certification. Here’s part of a previous story from The Industry Spread.
“Zaidi explained that when an exchange attempts to list a new product, the exchange, ‘Prior to listing new contracts, the Commodity Exchange Act provides DCMs (Designated Contract Market) with the option to either submit a self-certification to the CFTC or voluntarily submit the contract for approval.’”
“With a self-certification, Zaidi noted, the exchange effectively does the approval on its own but then guarantees that the contract is from fraud and manipulation; the self-certification process is how, Zaidi said, most products are brought to market.”
The CFTC’s Market Risk Advisory Committee, which will hold a hearing on January 31, 2018, on this issue, “advises the Commission on matters relating to evolving market structures and movement of risk across clearinghouses, exchanges, intermediaries, market makers and end-users. It examines systemic issues that threaten the stability of the derivatives markets and other financial markets, and makes recommendations on how to improve market structure and mitigate risk.”According to its webpage.
Giancarlo further noted, “In 2014, the CFTC declared virtual currencies to be a “commodity” subject to oversight under its authority under the CEA. Since then, the CFTC has taken action against unregistered Bitcoin futures exchanges, enforced the laws prohibiting wash trading and prearranged trades on a derivatives platform, issued proposed guidance on what is a derivative market and what is a spot market in the virtual currency context, issued warnings about valuations and volatility in spot virtual currency markets and addressed a virtual currency Ponzi scheme. The CFTC has also produced consumer information about virtual currencies, including a dedicated Bitcoin webpage, a virtual currency primer and several podcasts.
“One thing is certain: ignoring virtual currency trading will not make it go away. Nor is it a responsible regulatory strategy. The CFTC has an important role to play. The CFTC seeks to promote responsible innovation and development that is consistent with its statutory mission to enhance derivative trading markets and to prohibit fraud and manipulation in connection with commodities in interstate commerce.”