More reports on: Commodities

CBOE to get head start in bitcoin futures race; CME close behind

05 December 2017

The race to get bitcoin futures is now on.  The Chicago Board Options Exchange (Cboe) Global Markets, the Chicago-based options and derivatives exchange, announced on Monday it will offer trading of its bitcoin futures product next Sunday evening at the start of global trading hours.

The first full day of trading would be on Monday, 11 December. That would beat the CME Group, which announced on Friday that it will begin trading bitcoin futures on 18 December, a week later, and the Nasdaq, which is also planning to introduce futures trading in the first half of 2018 (See: As bitcoin hits new high, Nasdaq, Cantor to join bandwagon).

Cboe and its cross-town rival CME Group got clearance from the US Commodity Futures Commission on Friday to launch bitcoin futures, which would allow investors to bet on the future price of the red-hot digital currency.

Bitcoin enthusiasts are hopeful that a bitcoin ETF might be coming. The Securities and Exchange Commission denied applications to start bitcoin ETFs earlier in the year on the grounds that the cryptocurrency was "unregulated," but Cboe head Ed Tilly said he plans to reapply with the SEC for a bitcoin ETF.

The argument seems to be simply that the presence of a futures market will demonstrate that the cryptocurrency is sufficiently "regulated" to allow ETFs to start. The argument may be helped by two features that will be a part of the bitcoin futures: price limits and margin rates.

The CBOE and CME will have margin rates of 30 per cent and 35 per cent respectively.

Tilly, chairman and chief executive officer of Cboe Global Markets, described the interest in bitcoin futures as unprecedented.

"It has really been the driving force," Tilly told Business Insider."We are not new to launching new products so this is remarkable."

Tilly declined to comment on how that interest will translate into trading volume. Still, he said the firm designed the product to ensure it'll provide the best, most liquid market.

"We dedicated significant time hardening our systems, talking with market makers, and this will continue to be a work in progress," he said. "With other products we've gone back, we've redesigned, we've relaunched."

Trading on Cboe will be free throughout the month of December and will trade under the symbol "XBT."

Terry Duffy, the chief executive of CME, said the path forward for bitcoin futures is relatively uncertain.

"Though we have worked through a lengthy, comprehensive process with the CFTC to get to this point, we recognise bitcoin is a new, uncharted market that will continue to evolve, requiring continued collaboration with the Commission (SEC) and our clients going forward," he said in a statement.

As for bitcoin, the cryptocurrency itself was up more than 1,000 per cent at $11,389 as of Monday.

In addition to being able to short bitcoin, there's considerable speculation about whether futures will lower or increase the volatility level of bitcoin. The CME, for example, says it will be using price limits that kick in during gains or losses of 7 per cent, 13 per cent and 20 per cent that would slow and in some cases halt trading. In particular, prices will not be allowed to move up or down more than 20 per cent from the prior day's close. If that limit is hit, trading can only continue at or within the +/- 20 per cent limit for the remainder of the trading session.

There may even be a price war developing for the business. The CBOE made a point in its press release this morning to say trading would be free through December, but doesn't say how much it would be after.

The CME says bitcoin futures will be priced at a premium to standard Equity Index futures, but in line with the pricing conventions of other premium products.

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