New York - LedgerX has confirmed its application with the CFTC to become a swap execution facility (SEF) and a derivatives clearing organization (DCO). If approved, LedgerX would be the first U.S. regulated derivatives exchange and clearing house where Commodity Futures Trading Commission ￼￼institutions could obtain bitcoin assets and hedge digital currency fluctuations.
Regulated derivatives exchanges play an important role in the development of financial markets. "Digital currency derivatives present a huge opportunity, but to gain mainstream adoption, a regulated market will need to be developed," said James E. Newsome, Ph.D., former Chairman of the CFTC, former CEO of NYMEX, and one of the two independent directors on LedgerX's board. "By providing liquidity and a secure venue for investors to manage short and long-term risk, LedgerX will facilitate the evolution and adoption of these products."
If approved by the CFTC, LedgerX will list asset-settled derivatives products based on the digital currency bitcoin, including options to purchase or sell bitcoin. "Options are powerful financial instruments that can turn one of the concerns related to bitcoin - historically high volatility - into an opportunity for both investors and hedgers," said Paul Chou, CEO and co-founder of LedgerX. "LedgerX was created to offer merchants, financial institutions, market makers and other financially-sophisticated market participants a solution for managing market exposure in digital currencies through the use of regulated, exchange- traded and centrally-cleared derivatives products," continued Chou. LedgerX intends to be the first U.S. based, U.S. banked, and U.S. federally regulated derivatives exchange and clearing house for bitcoin and other digital currencies.
The LedgerX management team is comprised of Goldman Sachs, MIT and CFTC alumni, who bring financial expertise, technical talent and regulatory experience to the firm. In addition to Newsome, LedgerX has also recruited Thomas K. Lewis, Jr., former CEO of Ameritrade and former CEO of Green Exchange, to its board of directors.
"Although still a fairly novel concept, digital currency derivatives make sense," said Lewis. "At GreenX, I watched the exponential growth of the carbon market, and I expect bitcoin derivatives to garner similar interest with institutional customers," concluded Lewis.