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CME Group, the world’s leading and most diverse derivatives exchange marketplace, has announced that it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant and necessary regulatory review periods. The new contract from the Chicago-based exchange is to provide a “regulated trading venue” for the cryptocurrency market.
The contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR), which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. And, bitcoin futures will be listed on and subject to the rules of the CME.
Terry Duffy, CME Group Chairman and CEO, commenting on the development said: “Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract.”
He added: “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”
Through its exchanges, the CME offers the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.
Today the company comprises four Designated Contract Markets (DCMs) or exchanges, the CME, CBOT, which brings a suite of interest rates, agricultural and equity index products and joined the CME Group back in 2007, as well as COMEX (metals products including several global benchmarks in precious, base and ferrous metals) and NYMEX offering energy products plus metals and agricultural contracts. The latter two joined the group in 2008.
Since November 2016, the CME and Crypto Facilities Ltd., a crypto futures trading platform regulated by the UK’s Financial Conduct Authority that supports currencies bitcoin and Ripple, have calculated and published the BRR. This aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time.
Earlier this October, Crypto Facilities launched two new crypto currency rates in open beta, namely: (1) CF Ripple-Bitcoin Reference Rate (RRR_XBT), a once-a-day reference rate of the bitcoin price of 1 Ripple; and, (2) CF Ripple-Bitcoin Real Time Index (RRTI_XBT), an instantaneous rate of the US dollar price of 1 Ripple.
The BRR is designed around the International Organization of Securities Commissions’ (IOSCO) Principles for Financial Benchmarks. Several bitcoin exchanges and trading platforms – Bitstamp, GDAX, itBit and Kraken – are the constituent exchanges that currently contribute the pricing data for calculating it.
Dr. Timo Schlaefer, CEO of Crypto Facilities, remarked: “We are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product,”
He added: “The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide.”
The CME and Crypto Facilities Ltd. also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency to the spot bitcoin market.
The BRTI combines global demand to buy and sell bitcoin into a consolidated order book and reflects what is described as “the fair, instantaneous U.S. dollar price” of bitcoin in a spot price. It is published in real time and said to be suitable for marking portfolios, executing intra-day bitcoin transactions and risk management.
The CME’s BRR and BRTI, a standardized reference rate and spot price index with independent oversight that launched November 14, 2016, were asserted by the exchange to be “accelerating the professionalization” of bitcoin trading and further establishing digital assets as a new asset class.
Cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54% of that total (equivalent to $94 billion). As for the bitcoin spot market, it has also grown to trade roughly $1.5 billion in notional value each day.
In terms of what bitcoin exchanges were saying about this latest CME development, Nejc Kodric, CEO of Bitstamp, said: “An independent, transparent bitcoin reference rate will further professionalize the asset class.”
Jesse Powell, CEO of Kraken, added: “This is an exciting initiative and brings the asset class to a new level. As a market-leading digital asset exchange, Kraken is proud to contribute to the reference rates.”
The CME exchange group provides electronic trading globally on its CME Globex platform and also offers clearing and settlement services across asset classes for exchange-traded and over-the-counter derivatives through CME Clearing.
Core members of the independent oversight committee responsible for overseeing the scope of the Bitcoin Reference Rate by developing a code of conduct for participants and reviewing the practice, standards and definition of the reference rate, includes the CME’s Gavin Lee and Payal Lakhani, independent expert Andreas M. Antonopoulos, Max Boonen, B2C2, Professor William J. Knottenbelt of Imperial College London, Michael Moro, Genesis Global Trading, and Dr. Timo Schlaefer.
For the methodology behind the CME CF Bitcoin Reference Rate (BRR), which includes a summary description and covers definitions including the calculation date, TWAP period and constituent exchange, see this document.