Shearman & Sterling | Fintech 2020 | CFTC Approves LedgerX’s DCM Application
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  • CFTC Approves LedgerX’s DCM Application
    Last week, the Commodity Futures Trading Commission (CFTC) approved digital asset exchange LedgerX LLC’s application to be registered as a designated contract market (DCM), in addition to its previously approved role as a swap execution facility (SEF) and derivatives clearing organization (DCO) for swaps.  A DCM is an exchange that operates under the regulatory oversight of the CFTC and may list for trading futures or option contracts. 

    With this approval in hand,  LedgerX now has the ability to offer physically-settled bitcoin futures contracts to both institutional and retail investors on its new Omni platform, in addition to the physically-settled bitcoin swaps and options that it has been dealing in since 2017.  However, LedgerX is currently limited only to clearing swaps, and the firm’s request to amend its order of registration as a DCO to allow it to clear the futures listed on its DCM is still pending.   The DCM order also does not permit LedgerX to allow futures commission merchants to carry customer positions traded on the exchange, absent further approval.  As a result, there may be questions as to the ability of customers to trade the contracts on margin.

    A number of other firms, including ICE, CME and ErisX, also hold DCM licenses and have commenced or announced plans to trade digital asset contracts, and, given bitcoin’s recent rally, we would not be surprised to see other digital asset trading platforms consider filing DCM applications in the future.