With the U.S. Securties and Exchange Commission (SEC) declaring that Ether is not a security, the largest obstacle to Ether futures appearing on CBOE Futures Exchange (CFE) and Chicago Mercantile Exchange (CME) seems to have been removed.
On Thursday, 14 June 2018, William Hinman, the director of the Division of Corporation Finance at the SEC, made a speech at Yahoo Finance’s “All Markets Summit: Crypto” one-day event in San Francisco, California. The speech was about how the SEC plans to use the “Howey Test” to determine whether a digital asset should be considered a security or not. The only two cryptocurrencies Hinman mentioned by name were Bitcoin (BTC) and Ether (ETH), neither of which he said should be considered as securities:
And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise. The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value. And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.
Hinman’s remarks brought great relief to the crypto space, which had been uncertain about the status of Ether ever since 22 April 2018, when a New York Times interview with a former chairman of the U.S. Commodity Futures Trading Commission (CFTC), Gary Gensler, revealed that he believed that Ether and XRP had been issued and traded in violation of U.S. federal securities law:
“There is a strong case for both of them — but particularly Ripple [XRP] — that they are noncompliant securities.”
Since the CFTC had never expressed any doubt regarding the status of Bitcoin, it was no surprise to see the CFTC announce on 1 December 2018 that the CFE and CME had filed self-certified new contracts for bitcoin futures products. And later in the same month, these two exchanges launched trading of Ether futures (CFE on December 11th and CME on December 18th) on their platforms.
Since the CFTC’s self-certification procedure does not leave it with much room to object to any new futures products proposed by Designated Contract Markets (DCM), such as CFE and CME, and the only other regulatory body that could object to any cryptocurrency futures product is the SEC, which already has said that Ether is not a security (and therefore outside its jurisdiction), this means that there are no major regulatory obstacles for any U.S. futures exchanges that decide to offer Ether futures. But do CFE and CME want to offer Ether futures?
Well, we know that CFE is definitely interested. On the day of Hinman’s speech, Chris Concannon, the president and chief operating officer (COO) of Cboe Global Markets, released a statement that said:
“We are pleased with the SEC’s decision to provide clarity with respect to current Ether transactions… This announcement clears a key stumbling block for Ether futures, the case for which we’ve been considering since we launched the first Bitcoin futures in December 2017.”
As for CME, on 14 May 2018, in partnership with UK-based cryptocurrency exchange Crypto Facilities (which had launched its own Ether futures products on 11 May 2018), it launched an “Ether Reference Rate” and an “Ether Real Time Index”, which is a pretty good indication of its interest in launching Ether futures. And, of course, if CFE launches Ether futures, it would be quite unthinkable for CME, the largest futures exchange in the world, to not shortly follow suit.
According to data from CryptoCompare, at press time, ETH is trading at $493.59, down 1.49% during the past 24 hour period.