CFTC’s Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) issued an advisory to Designated Contract Markets, Swap Execution Facilities, and Derivative Clearing Organizations aimed at clarifying the Commission staff’s priorities and expectations in its review of new virtual currency derivatives to be listed. The document was published yesterday on the CFTC website.
The Advisory reflects the CFTC staff’s current thinking based on their experience with virtual currency derivative products to date.
The published document explains that innovation and improvement of the market is encouraged, but that investors and traders should be warned against potential risks associated with virtual currency markets.
Provided guidance discusses the five main areas which require particular attention:
- Enhanced Market Surveillance: Exchanges shall obtain and provide information related to the identity of the trader, prices, volumes, times, and quotes from the relevant market makers or traders. During and around the settlement period, potential anomalies and disproportionate moves which can impact trading on the exchange shall be identified.
- Close coordination with the CTFC Surveillance Group: Exchanges shall keep in contact with the Commission staff and provide the necessary surveillance information as requested.
- Large Trader Reporting: Exchanges shall set the large trader reporting threshold for any virtual currency derivative contract at five bitcoins (or the equivalent for other virtual currencies)
- Outreach to Members and Market Participants: Exchanges shall engage meaningfully with relevant stakeholders and as part of its submission to the Commission for the listing of a virtual currency derivative contract and share information with the Commission.
- DCO’s Risk Management: The Commission will review DCO’s in detail for approval.
Earlier U.S. and Canadian securities regulators launched operation “CryptoSweep” in order to fight fraudulent ICO’s and even created a fake website to educate potential investors against fraud.