In a press release, the CFTC says that it is giving Bitcoin derivatives startup LedgerX temporary registration as a swap execution facility (SEF). SEF is a platform for swap trading regulated by the Securities and Exchange Commission and the Commodity Futures Trading Commission that provides pre-trade information (bids and offers).
It also provides an execution mechanism for swap transactions among eligible participants. Nonetheless, the regulator has issued an order of temporary approval for the company’s application to list and clear fully collateralized, physically settled options on Bitcoin for the institutional market.
The Commission to Undertake a Substantive Review of LedgerX’s Application
As it is a temporary solution for LedgerX, there is still potential for a permanent solution and for that the commission says that the next move will include undertaking a substantive review of LedgerX’s application for full registration. Earlier, LedgerX had applied for registration with the CFTC as a SEF and derivatives clearing organization DCO on September 29, 2014.
The CFTC had then solicited public comment on the application near the end of the year. Nonetheless, the approval according to the press note does not immediately mean LedgerX will list any product for trading. In fact, prior to any listing, the company must still comply with a number of additional requirements.
Paul Chou, founder of LedgerX, was quoted saying that this is a first step, and is positive progress, but it is just one milestone toward their ultimate goal. He is of the view that the company’s mission is still to obtain a derivative clearing organization license (DCO) to operate a federally regulated Bitcoin derivatives exchange and clearing house.
The Decision May Pave the Way for the Company
According to Paul Chou at this time, his organization does not intend to launch with only a SEF license. Currently, institutional investors such as hedge funds, family offices and money managers have lacked the ability to use forward option contracts to leverage and hedge exposure to the digital currency, the latest decision may pave the way for them.
In very short span of time LedgerX has emerged as a leading name in the industry. When it was founded in 2014 by Chou, a former Goldman Sachs executive, it had received a lot of attention from Jim Newsome, former chairman of the CFTC. Tom Lewis, former CEO of Ameritrade is part of the board of directors.
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