The U.S. Commodity Futures Trading Commission (CFTC) expects to see more companies apply to become federally-regulated clearinghouses as a result of growing interest in cryptocurrencies.
Chairman J. Christopher Giancarlo, testifying on âthe state of the CFTCâ before the U.S. House Agriculture Committee on Wednesday, said in his opening remarks that the clearinghouses his agency regulates are âcritical single points of risk in the global financial systemâ which continue to grow and become more complex.
Clearinghouses are financial institutions that facilitate transactions between two parties, acting as intermediaries to ensure trust on all ends. The CFTC routinely examines these entities to identify any possible issues that may affect their ability to monitor or control their risks, Giancarlo told lawmakers. âThe importance of these examinations to overall financial stability are all increasing.â
The agency regulates a number of registered clearinghouses within the U.S., as well as six located overseas and has exempted four foreign clearinghouses. This number will grow, Giancarlo said â especially with the introduction of crypto futures.
He added:
âThe 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.â
Crypto derivatives provider LedgerX operates as a clearinghouse already, while platforms like ErisX are still waiting for the CFTC to approve their applications to become derivatives clearing organizations (DCOs), which is a necessary designtation to operate as a clearinghouse.
Giancarlo also addressed LabCFTC, the regulatorâs fintech research group created to keep up with changing technology.
During his remarks, the Chairman highlighted blockchain and cryptocurrencies as two aspects of ârapidly changing markets and technological developments.â
LabCFTC was able to help the regulator anticipate some of this development and what an appropriate regulatory response might be, he said.
In particular, the CFTC has been able to independently analyze market data âwithout being reliant on self-regulatory organizations and market intermediaries,â he said.
Moreover, the CFTC was able âto determine the value of technological innovations,â he said, citing âcrypto-asset-based futures productsâ as an example.
CME and Cboe both announced they were launching cash-settled bitcoin futures products at the end of 2017, and ErisX, LedgerX, Seed CX and Intercontinental Exchangeâs Bakkt all plan to offer physically-settled bitcoin futures and forwards once theyâve achieved the necessary regulatory approvals.
Giancarlo image via YouTube