LedgerX Receives CFTC Mandate as Bitcoin Derivatives Clearing Organization

The US Commodity Futures Trading Commission (CFTC) has granted blockchain startup LedgerX its official registration as a derivatives clearing organization (DCO), helping solidify LedgerX’s centralized clearing capabilities and allowing the firm to both trade and clear Bitcoin options.

Following a review of the LedgerX application, the CFTC determined that LedgerX complies with the necessary regulations under the Commodity Exchange Act (CEA).

As a registered DCO, LedgerX will be authorized to provide its suite of clearing services with respect to swaps, subject to certain requirements; and futures and options on futures contracts traded on or subject to the rules of a designated contract market.

LedgerX plans to list and clear fully collateralized, physically settled options on Bitcoin and other cryptocurrencies.

Upon request, LedgerX was also granted an exemption from complying with certain CFTC regulations due to its fully-collateralized clearing model. More specifically, the Bitcoin options platform will not be required to undertake monthly stress tests of its financial resources to ensure that it could withstand the default of its largest participant.

While a notable milestone, LedgerX also made headlines earlier this month after the CFTC issued an order of registration to the New York-based Bitcoin swap exchange, granting it registration status as a Swap Execution Facility (SEF).

LedgerX is aiming to become the first approved facility where physically-settled options on Bitcoin can be listed and cleared. Many in the crypto industry voiced their support, citing the potential benefits of hedging against market risk and the ability to gain insight into market sentiment and volatility.

The CFTC noted that this authorization decision “does not constitute or imply a commission endorsement of the use of digital currency generally, or bitcoin specifically.”

Paul Chou, CEO of LedgerX commented: “A U.S. federally-regulated venue for derivative contracts settling in digital currencies opens the market to a much larger customer base. We are seeing strong demand from institutions that previously could not participate in the bitcoin market due to compliance restrictions against unregulated venues. In particular, there is a desire for fund managers to hold financial instruments that are not correlated with the broader equity market, and digital currencies meet that need.”

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