The top U.S. derivatives regulator said Friday that his agency doesn't plan to change the way virtual-currency derivatives come to market, but will put in place stricter protocols to deal with the challenges such products pose for regulators.
Commodity Futures Trading Commission Chairman J. Christopher Giancarlo said that he had asked his staff to craft a "heightened review" process for virtual-currency derivatives such as bitcoin futures, and laid out an eight-point checklist for regulators to follow when exchanges launch a new product. The CFTC used most of that checklist in its review of CME Group Inc. and Cboe Global Markets Inc.'s recent rollout of bitcoin futures.
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The CFTC has limited power to constrain growth of cryptocurrency derivatives. Exchanges can effectively launch new products without the CFTC's approval by declaring they have controls to guard against manipulation. The CFTC has emergency authority to halt trading of futures but has used it only five times in its 43-year history.
Mr. Giancarlo, giving a speech at an industry conference in Florida, pushed back on criticisms that the CFTC could have done more to limit the launch of new products, given exchanges' ability to self-certify such launches. Though labeling himself neither an "apologist nor an opponent" of self-certification, he made a point to say that he didn't believe congressional action to change the self-certification process was necessary.
The new checklist includes enhanced information-sharing agreements between exchanges and the CFTC, as well as agreements between exchanges to coordinate product launches.
"In crafting its process of 'heightened review' for compliance with core principles, CFTC staff prioritized visibility and monitoring of markets for bitcoin derivatives and underlying settlement reference rates," said Mr. Giancarlo, a Republican.
Mr. Giancarlo's bolstering of the new product-review process comes as the CFTC has been at the center of a flurry of activity involving virtual currencies. On Thursday, the agency brought three cases against individuals and firms it accused of virtual currency-related fraud.
Mr. Giancarlo said his agency's response to the rise of virtual currencies has been "balanced" overall, adding that some criticisms leveled by market participants have been off the mark.
In particular, he responded to a letter sent by the Futures Industry Association in December that called on the CFTC to solicit more input from the public before allowing new virtual-currency products to come to market. Mr. Giancarlo said he recognized those concerns, and said it was "right that interested parties, especially clearing members, have an opportunity to raise appropriate concerns for consideration by regulated platforms proposing virtual currency derivatives." He said that part of the CFTC's "heightened review" process would be to ask exchanges whether they had sought public comment before launching their products.
"The CFTC's current product self-certification framework is consistent with public policy that encourages market-driven innovation that has made America's listed futures markets the envy of the world," he said, adding, "whatever the market impact of bitcoin futures, I hope it is not to compromise the product self-certification process that has served so well for so long."
The CFTC will hold an advisory committee meeting on the self-certification process on Jan. 31, chaired by Democratic Commissioner Russ Behnam.
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(END) Dow Jones Newswires
January 19, 2018 12:59 ET (17:59 GMT)
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