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CFTC Approves LedgerX To Settle Futures In Real Bitcoin (#GotBitcoin?)

The Commodity Futures Trading Commission (CFTC) has cleared bitcoin derivatives provider LedgerX to offer physically settled bitcoin futures contracts. CFTC Approves LedgerX To Settle Futures In Real Bitcoin (#GotBitcoin?)

CFTC Approves LedgerX To Settle Futures In Real Bitcoin (#GotBitcoin?)

The CFTC said Tuesday it had approved LedgerX’s application for a designated contract market (DCM) license, meaning the company can now offer the new futures contracts. LedgerX is the second company to receive approval to offer physically settled bitcoin futures; other firms, such as Intercontinental Exchange’s Bakkt, Seed CX and ErisX plan to enter this market. (While Bakkt’s own futures contracts have been self-certified, the firm is waiting for the New York Department of Financial Services to license its warehouse).

Unlike the cash-settled bitcoin futures listed by the Chicago exchanges Cboe and CME, in physically settled futures the buyer receives the underlying commodity when a contract expires, rather than the fiat equivalent.

Monday’s approval means that New York-based LedgerX can not only list these bitcoin futures contracts but crucially can offer its products to retail clients, not just institutional ones.

No timeline was provided for when LedgerX might start to offer futures. but chief operating and risk officer Juthica Chou told CoinDesk that the company was looking to be the first provider of this product in the U.S.

“There’s no doubt that we’re looking to be first, we’re looking to be the incumbent,” she said. “We think we’re better positioned and we want to be there to serve customers of all sizes.”

LedgerX would follow the same self-certification process that it already underwent to offer swaps and options, Chou said, adding:

“Ultimately the products are not that economically different than what we’re already offering … but this would open up to a broader [market].”

While Bakkt has previously announced that it would be testing its own physically-settled bitcoin futures contracts in July, a firm launch date has yet to be announced. Seed CX and ErisX have likewise not yet announced when they would launch their futures products (or forwards, in Seed CX’s case).

Months-Long Process

LedgerX applied for the DCM in November 2018 and has since been working with the CFTC. It already offers swaps and options contracts for customers.

The DCM application came on top of LedgerX’s existing Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) licenses, which approve the company’s exchange platform and clearinghouse, respectively.

The new license carries with it the same set of responsibilities that the other two have, Chou said, though securing the latest approval “was a pretty difficult process” due to the issues involved.

LedgerX is now eyeing a gradual rollout of its new products, including its retail-focused Omni platform.

“We want to be careful and conservative so we’ll soft-launch the Omni product,” she said. “We’ll take customer feedback and we’ll make sure it works.”

The company will roll out its existing swaps and options product to all customers, as well as a new block height option product which the company recently self-certified.

Chou Added:

“We have a pretty extensive waitlist and we’ll work through that until we feel comfortable.”

Updated: 1-11-2020

LedgerX Board Member Says Company in Disarray After Founders’ Ouster

A LedgerX director and investor has withdrawn his funds and alleged the company may be failing its investors in a dramatic letter obtained by CoinDesk.

Nicholas Owen Gunden wrote in a letter addressed to the LedgerX Holdings board, LedgerX LLC board, LedgerX shareholders, and the Office of the Inspector General at the Commodity Futures Trading Commission (CFTC) that he was concerned about how the bitcoin derivatives provider was operating since the company’s founders were placed on administrative leave on Dec. 9.

“I am concerned with recent developments at the company, particularly the fact and manner in which the founders, Paul Chou and Juthica Chou, and particularly Juthica, have been barred from continuing their roles at the company,” he wrote.

According to an exhibit filed by LedgerX in its designated contract market (DCM) application, Gunden has been a board member since 2017 as a market participant, and was on the company’s disciplinary panel as of last year.

In a three-page list of concerns, he explained that since the founders were ousted, no one has acted as his point of contact and alleged that some shareholders appeared to be receiving preferential treatment.

“Just days after Paul and Juthica were placed on administrative leave, a petition was circulated at the office, which 75% of employees signed in support of retaining Paul and Juthica’s leadership. I have seen a copy of this petition and believe it to be legitimate,” he wrote.

However, two of the employees who filed the petition were fired, “apparently in retaliation,” he alleged.

He is also concerned that LedgerX may no longer be compliant with regulatory requirements and may be failing in its fiduciary duties.

LedgerX board member Mark Wetjen did not immediately return a request for comment.
Questionable firing

In his letter, Gunden suggested that Juthica Chou’s suspension from her roles as chief financial and risk officer of the company may be posing more harm than good to LedgerX.

He detailed the meeting the board held to suspend Juthica and her husband Paul, saying “an extreme and one-sided case” was presented against the two, but there was no opportunity for defense.

“While a case can be made against Paul due to his recent external communications, no comparable case can be made against Juthica, and yet she is being removed as well in spite of being the best suited candidate for CEO,” he said.

He appears to be referencing Tweets and possibly letters written by Paul Chou alleging wrongdoing on the part of the CFTC after the company was not allowed to launch physically-settled bitcoin futures contracts last year.

“Just days after Paul and Juthica were placed on administrative leave, a petition was circulated at the office, which 75% of employees signed in support of retaining Paul and Juthica’s leadership. I have seen a copy of this petition and believe it to be legitimate,” he wrote.

However, two of the employees who filed the petition were fired, “apparently in retaliation,” Gunden alleged.

Shareholder letters “outlining concerns” with the interim management had been ignored, and while some minority investors in the company have expressed interest in backing the company further, this is contingent upon Juthica Chou being named the new CEO.

Attempted Takeover?

Gunden expressed concerns that Miami International Holdings (MIAX), one shareholder in the company, might be attempting to take over the company, or at least acquire its regulatory licenses.

Gunden said MIAX was the only shareholder invited to attend and participate in certain private board meetings, which he found problematic. Aside from board members, no other shareholders were present.

Further, he alleged that a Holdings board member may be accepting “payouts for helping MIAX to complete an insider funding round.”

LedgerX CFO Jennifer Liu has been kept in the dark regarding the Holdings board’s actions, he added (Liu did not immediately return CoinDesk’s request for comment).

Other concerns include that the Holdings board presented “overly pessimistic” financial statements to the board of directors; that the company does not appear to be trying to raise funds outside of MIAX; and that the company is spending an extra $60,000 per month by hiring a security company.

“From what I can tell, the Holdings board is engaged in grossly negligent actions towards LedgerX market participants, employees, shareholders, and perhaps even CFTC compliance requirements themselves,” he wrote.

As such, many staffers are expecting the worst, Gunden wrote: “I have spoken with two current employees and learned that there is a lot of confusion and uncertainty at the company, and I’ve received reports that many employees are interviewing elsewhere in anticipation of the company shutting down.”

Updated: 12-10-2020

CFTC Chairman Tarbert Announces Resignation, Confirms That Ether Is A Commodity

Over the course of his 18-month term, Tarbert has been a consistent advocate for principles-based regulation of crypto.

In a public statement on Thursday, Chairman Heath Tarbert announced that he will be leaving the Commodity Futures Trading Commission early next year.

In listing accomplishments over the course of his term, Tarbert included that “We have promoted responsible fintech innovation and declared Ether a commodity.”

This tracks with Tarbert’s broader interest in the crypto markets and earlier statements affirming that Bitcoin (BTC) and Ether (ETH) should not face regulation as securities.

Tarbert, who joined the CFTC in 2019, has been a noted voice for sound crypto regulation at the federal level. He joins a laundry list of appointed regulators who are leaving their posts to make way for a new administration. Tarbert’s colleague, Commissioner Brian Quintenz, is also poised to depart soon.

There is no word yet on President-elect Joe Biden’s preferences for leadership at the CFTC or the related Securities and Exchange Commission, though he has made Tarbert’s predecessor, Gary Gensler, a leader of his financial team.

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