Swap Execution Facility TeraExchange Finalizes First Bitcoin Swap Agreement

As a number of tradable instruments have been derived in the financial service space as a result of Bitcoin and

TERAJust a few hours earlier, Digital Currency Magnates covered breaking news that CFTC-registered Swap Execution Facility (SEF) under the name TeraExchange, part of Tera Group Inc, has revealed a Bitcoin swap agreement.

The terms for the Bitcoin swap contract, which are structured agreements for a bilateral exchange of assets, would provide a multi-million dollar transaction between two US firms to hedge the value of bitcoins in US dollars, with an initial term of the agreement being a 25 day non-deliverable swap based on US dollars.

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Forex Magnates’ reporters spoke with sources familiar with the development who said that the company’s executives were at the Coinsumm.it Bitcoin expo in California today, indicating that the news may have been strategically announced at the expo as firms may often save big news for related industry events.

Bitcoin Swap Inches Closer to SEF

Shortly after publication by Forex Magnates, a call with Tera’s CEO, Christian Martin was arranged, and he explained to our journalists that the most salient point was how although this Bitcoin swap was not traded on its SEF, since its not a regulated instrument, the company had ported out all of the technological functions of the protocols that would have been used for such an instrument on its SEF and applied them to the Bitcoin Swap. These include aspects of transparency, standardization and reportability, all areas it deemed important to the regulators, and how the company has been in close contact with the CFTC for around a month in communicating its intentions to this offer.

In short, since it [Bitcoin] is not regulated or authorized by the CFTC to be traded on an SEF, Tera is treating it as such but it’s not being traded on their SEF but rather via their other entity since its not a regulated product, Mr. Martin emphasized. That could of course change, if the CFTC is able to interpret the applicability of its jurisdiction as possibly covering the realm of digital currencies, based on existing language included under the Commodity Exchange Act (CEA), Forex Magnates opines.

Mr. Matin said that the Bitcoin swap agreement mirrors a non-deliverable forward, an analogy also mentioned in the company’s announcement earlier.

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The official press release from Tera said any currency or duration could be specified in the agreement by the parties.

 Christian Martin, CEO and co-founder, Tera Exchange
Christian Martin, CEO and Co-founder, TeraExchange

“The use of a Bitcoin swap is an inflection point in the evolution of crypto-currency,” said Tera CEO and Co-founder Christian Martin, commenting in the official press release. Mr. Martin concluded, “There is incredible momentum and support behind this alternative global currency. But even with all this excitement it is critical that the market participants have tools at their disposal to hedge their price risk.” The company described that in a typical example, the swap will be used by a seller to protect itself from the price risk of bitcoin accepted in a commercial transaction.

The news marks another step by the brokerage industry to embrace ways of offering digital currency related instruments and derivatives, following the launch of Bitcoin CFDs and a number of brokers that have started to accept bitcoin deposits.

Regulatory Fate of Bitcoin Still Unknown

In related news, Kraken.com the exchange operated by Payward Inc., completed a successful audit of its reserves as the Bitcoin industry hopes to take measures to prove its credibility amid a wake of recent events such as the Mt. Gox collapse and most recent freezing of Vicurex accounts, as the future of digital currencies comes under scrutiny.

Leonard T. Nuara, President and co-founder,  TeraExchange
Leonard T. Nuara, President and Co-founder, TeraExchange

“The infrastructure and regulatory protocols already exist in the conventional OTC swaps markets to support these hedging instruments,” said Tera President and Co-founder Leonard T. Nuara, commenting in the official press release.

Mr. Nuara concluded in the announcement regarding the importance of regulation in the future of digital currencies, “Regulatory approval is crucial to the long-term growth of the market utilizing bitcoin.” The press release added how subject to regulatory approvals, Tera plans to make Bitcoin swaps available to eligible contract participants (ECPs).

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