Bakkt CEO Kelly Loeffler said that the ICE-backed startup has won approval from US regulators to offer physically-settled Bitcoin futures contracts, a move that could be be a step forward in building the first regulated derivatives market for the virtual asset.
Loeffler, who is married to ICE CEO Jeff Sprecher, further confirmed the exact date when the contracts trading would debut, namely on September 23. The futures contract will be cleared through ICE Clear US, which also clears trades for NYSE.
“Our contracts have already received the green light from the CFTC through the self-certification process and user acceptance testing has begun. With approval by the New York State Department of Financial Services to create Bakkt Trust Company, a qualified custodian, the Bakkt Warehouse will custody bitcoin for physically delivered futures. This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure,” she said.
Bakkt has been one of a cluster of companies seeking clearance from the CFTC to trade physically-settled futures in bitcoin, and they all have grown frustrated at the lengthy application process.
Although the CFTC has granted blockchain startup LedgerX its first approval to offer institutional and retail investors futures, options and swaps settled in the digital currency, the primary US derivatives regulator has since said LedgerX still lacks approval to do so. So it’s currently unclear whether the product will go live with any operator and Bakkt has yet to confirm in the few weeks leading up to launch date if it hits a snag with the CFTC.
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The new Bitcoin offering involves two futures contracts; daily future contract, which will enable customers to transact in a same-day market, and a monthly bitcoin futures contract. The contracts will be margined by ICE Clear US, including the collection of initial margin collateral and variation margin to manage risk.
Testing of Bakkt’s Bitcoin futures contracts already started last month as the ICE-backed startup was trying out the underlying infrastructure to see how things will evolve before it launches its much-anticipated product to the masses.
Resolving the custodian issue
And in order to placate the CFTC, the physical delivery and storage of bitcoin will be provided by Bakkt’s qualified custodian. This was the issue that has made the agency most concerned about the NYSE owner’s product as crypto assets have been vulnerable to the risks of possible theft and manipulation.
Bakkt also revealed that it would pay $35 million to contribute to arrangements of hedging against clearing risks. “This puts our own “skin in the game” and aligns our interests for market integrity and safety with market participants,” said CEO Loeffler.
Earlier this year, Bakkt acquired Digital Asset Custody Company (DACC), which provides cryptocurrency custody solution for institutional investors and token issuers holding digital assets. The takeover helped Bakkt secure the NY regulator’s approval to operate as a so-called ‘qualified custodian,’ which permits the company itself to hold custody of customers’ tokens. In addition, Bakkt also announced it has partnered with BNY Mellon to offer geographically-distributed storage of private keys secured by the bank.