CFTC Moves to Address Industry Concerns Over Virtual Currencies -- 2nd Update

By Gabriel T. RubinFeaturesDow Jones Newswires

The top U.S. derivatives regulator is moving to address financial-industry concerns over its oversight responsibilities for virtual currencies and related futures products.

Two Commodity Futures Trading Commission advisory committees, which include both regulators and industry participants, will meet in late January to address issues related to policing activity on virtual-currency exchanges, the clearing of bitcoin futures and the unique risk of fraud and manipulation related to virtual currencies.

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"Ignoring virtual-currency trading will not make it go away. Nor is it a responsible regulatory strategy," said Chairman J. Christopher Giancarlo in a statement announcing the meetings.

In addition to the announcement, the CFTC also released a fact sheet further elaborating on its approach to regulating virtual currencies. It pushed back on criticism leveled by powerful institutional investors, including billionaire Thomas Peterffy and the Futures Industry Association, who have opposed to the CFTC's approach to bitcoin futures. They have raised concerns in recent weeks about whether clearing bitcoin futures alongside other, more traditional derivatives products might introduce unwanted risks into the clearing process.

The FIA, in a letter to Mr. Giancarlo, questioned whether the CFTC could have done more to solicit public input or delay the launch of bitcoin futures by exchanges run by CME Group Inc. and Cboe Global Markets Inc.

"Neither statute nor rule would have prevented CME and [Cboe Futures Exchange] from launching their new products before public hearings could have been called," according to the CFTC. "Even if the CFTC could have held public hearings or requested public input, it is unlikely that the outcome would have changed," the commission added, saying its staff has determined the bitcoin futures applications comply with commodities laws and regulations.

A spokesman for the FIA didn't immediately respond to requests for comment.

In response to calls for segregating the clearing of bitcoin futures from other derivatives, the commission noted that the process used by the exchanges to bring the contracts to market didn't allow regulators to mandate separate clearing.

The CFTC has labeled bitcoin a commodity, but as with other commodities, it mostly lacks jurisdiction over a product's primary market, as it has taken pains to remind investors. The CFTC can, however, regulate bitcoin markets that lend traders money to increase their bets, known as leveraged trading.

Mr. Giancarlo has been more willing to embrace virtual currencies than other regulators and has spoken favorably about regulators and the financial industry making use of blockchain, the technology that underpins bitcoin. He also has said proper enforcement of bitcoin and its related products would increase transparency and limit wrongdoing, making virtual currencies safer for the stampede of customers who have rushed into virtual currency markets in recent months.

Even if they could have legally blocked the launch of bitcoin futures contracts, the CFTC "would not have stemmed interest in bitcoin or other virtual currencies nor their spectacular and volatile valuations," the commission said.

Other regulators continue to warn investors about the risks associated with virtual currencies. The North American Securities Administrators Association, a group of state market regulators, told investors on Thursday to "go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products."

The Securities and Exchange Commission, which has previously issued its own warnings on cryptocurrencies and initial coin offierngs, also chimed in on Thursday, commending NASAA for its "timely and thoughtful reminder to Main Street investors to exercise caution."

Write to Gabriel T. Rubin at gabriel.rubin@wsj.com

(END) Dow Jones Newswires

January 04, 2018 15:26 ET (20:26 GMT)