The US Commodity Futures Trading Commission is anticipating a wave of new applications from companies attempting to become federally-regulated clearinghouses after an “explosion of interest in cryptocurrencies,” according to a testimony to the US House Agriculture Committee delivered by CFTC Chairman J. Christopher Giancarlo earlier this week.
— Chris Giancarlo (@giancarloCFTC) May 2, 2019
Giancarlo also said that as they continue to grow more complex, the clearinghouses his agency regulates are “critical single points of risk in the global financial system.”
Clearinghouses are financial institutions that are responsible for facilitating transactions between any two entities. They act as intermediaries that ensure trust on both ends of the transactions. The CFTC’s job is to examine these clearinghouses closely to identify possible problems that may impair the clearinghouse’s ability to do their job.
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More Clearinghouse Applications Are Anticipated
Giancarlo not only said that “the importance of these examinations to overall financial stability are all increasing,” but that the CFTC is likely to soon have more clearinghouses under its jurisdiction.
“The Commission anticipates new applications for clearinghouse registration resulting from the explosion of interest in cryptocurrencies; an area in which protection of the cryptocurrencies will be one of the highest risks,” he said. The CFTC already regulates many clearinghouses within the US, as well as six located overseas.
Cryptocurrency platform ErisX is one of the crypto-related platforms currently seeking approval to become a CFTC-regulated clearinghouse; crypto derivatives firm LedgerX has already achieved clearinghouse status.
Giancarlo also mentioned LabCFTC, the Commissions’ fintech research group. He said that blockchain and crypto were two important aspects of “rapidly changing markets and technological developments” that the research group has been able to help the CFTC anticipate and understand.
Additionally, the group’s work helped the CFTC “to determine the value of technological innovations,” including “crypto-asset-based futures products.”
As the bear market raged throughout 2018 and early 2019, many investors saw crypto futures products as an alternative to cryptocurrency investing and spot trading. CME and Cboe were the first two platforms to offer crypto futures in late 2017; since then, a growing number of platforms have joined them, including ErisX, LedgerX, Bakkt, and others.