Breaking: CFTC Abolishes Strict Scrutiny for Crypto Derivatives 📢
Regulatory body, CFTC, retracts guidance on cryptocurrency derivatives amidst maturity of the digital asset market.
The Commodity Futures Trading Commission (CFTC) has kicked off a new era for cryptocurrency derivatives by axing its tough scrutiny policy. These financial products, often linked to crypto, allow investors to guess future price swings without actually holding the associated assets.
On March 27, the CFTC's Division of Clearing and Risk (DCR) and Division of Market Oversight (DMO) announced the withdrawal of CFTC Staff Advisory No. 18-14. This guidance, published in May 2018, imposed stern regulations for listing contracts related to virtual currency derivatives on swap execution facilities (SEFs) or designated contract markets (DCMs), as well as their clearing through derivatives clearing organizations (DCOs).
Evolving Markets and Gaining Regulatory Confidence 📈️
The CFTC initially released the advisory due to concerns about risks in the crypto sector. It emphasized enhanced market surveillance, engagement with the CFTC, large trader reporting, stakeholder collaboration, and robust risk management for clearing organizations.
However, as the market matures and the CFTC gains regulatory experience, these additional measures are no longer deemed necessary. The agency stated, "DMO and DCR determined that the advisory is no longer needed given additional staff experience with virtual currency derivative product listings and increasing market growth and maturity."
This move signifies growing confidence in the market's self-regulation potential under existing frameworks, along with improved compliance from market participants. With the advisory nullified, companies might find the approval process for launching new crypto derivatives more straightforward.
Reflecting Sector Development
- The Commodity Futures Trading Commission (CFTC) has revoked the tough regulations imposed on listing contracts related to virtual currency derivatives, as announced by the Division of Clearing and Risk (DCR) and Division of Market Oversight (DMO) on March 27.
- The withdrawal of CFTC Staff Advisory No. 18-14 is significant as it allows for a more straightforward approval process for companies looking to launch new cryptocurrency derivatives.
- The CFTC originally published this advisory in 2018 due to concerns about risks in the crypto sector and the need for enhanced market surveillance, large trader reporting, and robust risk management for clearing organizations.
- As the market matures and the CFTC gains regulatory experience, these additional measures are no longer deemed necessary, indicating a growing confidence in the market's self-regulation potential under existing frameworks.
