Beyond Bakkt? LedgerX approved to launch physical bitcoin futures contract

The US Commodity Futures Trading Commission (CFTC) has approved bitcoin derivatives provider LedgerX to provide physical settlement of bitcoin futures contracts.

The CFTC said on Tuesday that it has approved LedgerX's application for a designated contract market (DCM) license, which means the company can now offer this new futures contract.

Bitcoin

LedgerX is the second company approved to provide physical settlement of bitcoin futures. Other companies such as Bakkt, Seed CX and ErisX of the Intercontinental Exchange (ICE) are also planning to enter the market. (Although Bakkt's own futures contract has passed self-certification, the company is awaiting the New York Financial Services Department (NYFS) to license its hosting plan).

Unlike the cash-settled bitcoin futures listed on the Chicago Board Options Exchange (Cboe) and the Chicago Mercantile Exchange (CME), the physical settlement of bitcoin futures when the contract expires, the buyer will receive the underlying commodity (here the bit Currency, not the legal currency equivalent to it.

The approval means that New York-based LedgerX will not only be able to launch such bitcoin futures contracts, but it is also crucial to provide this product to retail investors, not just institutional customers.

The time at which LedgerX began offering such futures has not yet been determined. But chief operating and risk officer Juthica Chou said the company hopes to be the first company in the US to offer such products.

“There is no doubt that we want to be number one. We think we have a better position and we want to serve all types of customers.”

According to Chou, LedgerX will follow the same self-certification process as offering swap and option products:

“These products are not economically different from the products we currently offer…but this will be open to the wider market.”

Although Bakkt has previously announced that it will test its physical settlement bitcoin futures contract in July, the specific launch date has not yet been announced. Seed CX and ErisX have not yet announced when to launch their own futures products.

LedgerX applied for DCM in November 2018 and has been working with CFTC since then. Earlier, it had offered swaps and options contracts to customers.

DCM's application is based on LedgerX's existing Swap Execution Tool (SEF) and Derivatives Clearing Organization (DCO) licenses, which respectively approve LedgerX's trading platform and clearing house.

Chou said that the new license bears the same responsibilities as the other two companies, but getting the latest approval "is a rather difficult process" due to the issues involved.

LedgerX is currently focusing on the gradual launch of its new products, including the Omni platform focused on retail.

“We want to be cautious and conservative, so we will try out the Omni product. We will listen to the customer feedback and make sure it works.”

The company will roll out its existing swap and options products to all of its customers, as well as the company's recently self-certified new block premium options.