On Jan. 19, Commodity Futures Trading Commission Chairman Chris Giancarlo gave a speech outlining his views on how the agency should respond to the rise of virtual currencies. Giancarlo said his goal is to achieve a “responsible regulatory response” that protects consumers, prevents manipulation and fraud, and provides regulators with the data they need to monitor prices and trading activity. He also discussed the thinking behind the CFTC's position on the introduction of bitcoin futures on U.S. exchanges. He described the self-certification process that the exchanges used to comply with CFTC regulations and outlined the steps that the exchanges agreed to take to manage the risks of these products. He also said that any trading venues and clearinghouses planning to introduce new virtual currency products will be asked to disclose the steps they have taken to gather input from trading firms, clearing firms and other interested parties.
In related news, the CFTC's Market Risk Advisory Committee held a day-long public meeting on Jan. 31 to discuss the self-certification process used by Cboe Futures Exchange and CME Group to launch bitcoin futures. The discussion focused on whether the process provided enough opportunity for regulators and market participants to fully assess the risks of these new products before they began trading in December.
CFTC staff made it clear that the agency is not responsible for policing the cash market for bitcoin. On the other hand, Cboe and CME are responsible for making sure that their contracts are not susceptible to manipulation, and the CFTC expects that the informationsharing agreements between the futures exchanges and the cash markets that supply their pricing references will serve a mechanism for preventing manipulation.
Representatives of several clearing firms, notably Citi, Goldman Sachs and J.P. Morgan, expressed concerns about the lack of consultation with the clearing firm community and stressed the need to make sure that clearing firms are ready to manage the risks before new products are launched. UBS executive Ed Pla, speaking on behalf of FIA, emphasized the importance of “twoway dialogue” among regulators, exchanges, clearinghouses and clearing firms, and applauded the steps announced by Giancarlo on Jan. 19 to ensure more consultation before additional cryptocurrency contracts are launched.
Representatives of Cboe and CME responded that they consulted extensively with clearing firms, market makers and other market participants ahead of the launch, but agreed that there may be ways to improve the feedback process. The exchange representatives also noted that bitcoin futures are not as novel and complex as some may think. Other contracts such as emission futures posed similar challenges in terms of volatility and uncertainty in the underlying market, they explained.