Swap execution facility (SEF) TeraExchange processed yesterday the first bitcoin derivative transaction to be executed on a regulated exchange. The initial trade was completed between digitalBTC and a hedging counterparty.
Trading of USD/Bitcoin swaps on TeraExchange are subject to the rules and regulations of TeraExchange and the U.S. Government’s Commodity Futures Trading Commission (CFTC).
“There is significant, growing demand for a hedging instrument like this,” said Christian Martin, CEO and co-founder of TeraExchange. “Not only does the swap provide a much-needed risk management tool but it instills confidence and credibility to the entire Bitcoin community at a vital time in the market’s development.”
“We are delighted to be working closely with TeraExchange and are excited they have created a regulated platform for institutional traders,” said Bill Brindise, Chief Investment Officer at digitalBTC, a liquidity provider for bitcoin swaps on TeraExchange. “This swap is an important investment vehicle that has been sorely needed by bitcoin investors, retailers and miners. Like TeraExchange, digitalBTC is no stranger to regulation since stock exchange listing requirements mandate complete transparency into our business activities and financial reporting.”
According to TeraExchange, it worked closely with the CFTC for over six months as it prepared its self-certification to ensure that the swap and the Tera Bitcoin Price Index satisfied the rules and regulations of the federal regulator.
The CFTC issued a notice of TeraExchange’s temporary SEF registration on 19 September 2014.
“The CFTC Staff was pragmatic in their approach and comprehensive in their analysis,” said Leonard T. Nuara, President and co-founder of TeraExchange, “and after months of refining the swap and the index we are excited that bitcoin derivatives trading has commenced on our platform.”
The Tera Bitcoin Price Index will be used as the settlement rate for the USD/Bitcoin swap. The Index, which was launched by TeraExchange at the same time as its regulated platform last month, employs a dynamic algorithm that compiles and filters data on a real-time basis from a number of widely utilized global bitcoin exchanges. In order to be included in the Index these exchanges are required to execute and maintain an information sharing agreement with TeraExchange, as required by the CFTC.
This initial trade on TeraExchange coincides with yesterday’s CFTC Global Markets Advisory Committee meeting organized and chaired by Commissioner Mark P. Wetjen. The public meeting includes a bitcoin derivatives-based panel discussion among CFTC Staff, academics and bitcoin industry participants including TeraExchange.
The CFTC noted this last month regarding TeraExchange’s temporary SEF registration…
TeraExchange will be required, as will all future temporarily and fully registered SEFs, to demonstrate continued compliance with all applicable provisions of the Commodity Exchange Act and CFTC regulations, including part 37, and any future regulations, amendments, guidance, and interpretations issued by the CFTC. As a next step, the CFTC will undertake a substantive review of TeraExchange’s application for full registration.
Launched in 2013, Delaware-based TeraExchange is a swap execution facility that is a wholly-owned subsidiary of Tera Group, Inc., a Delaware corporation and provides interest rate swaps, credit default swaps, non-deliverable forwards and now bitcoin swaps.