CFTC Greenlights Cboe For Crypto Derivatives Expansion: Analyzing Implications and Risks

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The Commodity Futures Trading Commission (CFTC) has granted approval for Cboe Global Markets to expand its range of crypto-related products as a derivatives clearing organization under the Commodity Exchange Act. Cboe Digital, a platform dealing in crypto spot and crypto derivatives markets, has received the go-ahead to provide leveraged derivatives once the contracts launch later this year.

This updated order permits Cboe Clear to offer clearing services for digital asset futures on a margin basis to futures commission merchants. It expands upon the earlier authorization of fully collateralized futures and swaps. CFTC Commissioner Christy Goldsmith Romero stated that the updated registration order allows Cboe to clear more crypto futures contracts while implementing careful risk-reduction measures.

While Cboe’s application stands out from FTX’s application for a direct-to-customer market structure with no intermediaries, it’s crucial to acknowledge the differences in their business models. FTX’s application was ultimately withdrawn after filing for bankruptcy in November. Romero mentioned that the proposed FTX model, risking customers’ bankruptcy priority, customer protections, and financial stability, was never adopted by the Commission.

Since 2019, Cboe’s clearinghouse has been registered with the Commission, and its parent company, based in Chicago, holds over 50 years of experience in regulated futures, options, foreign exchange, and equities markets. Last year, shortly after acquiring crypto exchange and clearinghouse ErisX, Cboe Digital partnered with firms like Jump Crypto, Interactive Brokers, and Robinhood to grow its digital asset business.

Cboe COO Chris Isaacson mentioned that the company plans to integrate the service only when it makes sense, emphasizing the need for agility in the fast-paced crypto asset class. Furthermore, Cboe aims to establish a digital advisory committee comprising partner firms, securing a niche market presence among platforms trading crypto futures.

Such regulatory approvals signify an evolving relationship between traditional financial institutions and the emerging world of digital assets. They highlight the growing recognition and acceptance of cryptocurrencies in mainstream finance. However, caution must be exercised by market participants and regulators alike to ensure proper risk management and the protection of consumers’ interests.

Today, there is $11.95 billion in bitcoin open interest and $6.17 billion in ether open interest across 12 platforms, not including Cboe Digital’s ErisX. With Cboe’s entrance into the crypto futures market, we can expect more innovative products and services to emerge, catering to a wider audience seeking exposure to digital assets.

Source: Blockworks

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