On Monday (July 1), U.S.-based crypto exchange ErisX, which launched its spot market on April 30, said that Eris Clearing had been granted a Derivatives Clearing Organization (DCO) license by the U.S. Commodity Futures Trading Commission (CFTC), supplementing the Designated Contract Market (DCM) license already held by Eris Exchange since 2011, which means that it should now be able to launch its futures market in the second half of 2019, thereby making the first digital asset exchange to offer both spot and futures markets on the same platform.
Before taking a closer look at this announcement, it is worth taking a brief tour of the history of ErisX.
What is ErisX and Who is Behind It?
On 3 October 2018, Eris Exchange, a Chicago-based derivatives exchange founded in 2010 and specializing in swap futures, announced ErisX, a planned new regulated crypto exchange offering both spot and futures markets on the same platform that would be competing with Intercontinental Exchange’s Bakkt platform (which is expected to launch later this year) for the attention of institutional investors.
At that time, we found out that ErisX is “backed by both new and existing investors spanning the traditional capital markets and digital asset markets including DRW Venture Capital, Valor Equity Partners, TD Ameritrade (AMTD), Virtu Financial (VIRT), NEX Opportunities, Cboe Global Markets (CBOE), CTC Group Investments, Digital Currency Group, Nico Trading, Pantera Capital and Third Stone Partners”.
The ErisX team said that it planeed to enter the crypto space in Q2 2019 by launching fiat (USD) spot markets for Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), and Litecoin (LTC), and that if it received approval from the CFTC for its DCO application in Q1 2019, it would launch futures contracts for Bitcoin and some other cryptocurrencies such as LTC or ETH in the second half of 2019. (As with ICE’s Bakkt, the futures contracts will be physically-delivered rather than cash-settled.)
Tim Hockey, the President and CEO of TD Ameritrade, said at the time:
As investors in ErisX, as well as a strategic contributor in the initiative, we are looking forward to advancing our innovation goals by working with an established, CFTC-regulated exchange that will include digital asset futures and spot contracts on a single platform. Working with these innovative companies gives us the opportunity to help them develop cryptocurrency products that we believe will fill a gap for retail investors within the digital currency ecosystem.
What Do DCO and DCM Registrations Mean?
According to the CFTC:
Designated contract markets (DCMs) may list for trading new contracts by filing a self-certification with the Commission that the new contract complies with the Commodity Exchange Act (CEA) and the Commission’s regulations or by requesting Commission approval.
A derivatives clearing organization (DCO) is an entity that enables each party to an agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the DCO for the credit of the parties; arranges or provides, on a multilateral basis, for the settlement or netting of obligations; or otherwise provides clearing services or arrangements that mutualize or transfer credit risk among participants.
ErisX’s Launch of Its Spot Market
On April 30, ErisX announced the public launch of its spot market, and called it “the first part of the vision for a unified digital asset spot and regulated futures exchange.”
Once again, ErisX said that it planned to “launch a regulated futures exchange and clearinghouse later this year.”
Currently, ErisX provides USD-based trading pairs for Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin (LTC), and BTC-based trading pairs for Bitcoin Cash, Ethereum, and Litecoin.
Two order types are supported: “Limit” and “Stop-Limit”.
What the CTFC Had to Say About Granting This DCO License
According to the CFTC’s press release, “the Commission voted unanimously to issue an order granting Eris Clearing, LLC (Eris) registration as a derivatives clearing organization (DCO) under the Commodity Exchange Act (CEA).”
Furthermore, it is important to note the “terms and conditions of the order require, among other things, that Eris comply with applicable provisions of the CEA, including the core principles in Section 5b of the CEA and with CFTC regulations,” as well as fulfilling “each of the representations it has made to the Commission relating to compliance with the core principles and CFTC regulations.”
Finally, the CFTC mentioned that its Division of Clearing and Risk had also issued “a letter granting Eris no-action relief from complying with certain CFTC regulations due to Eris’ fully-collateralized clearing model.”
What ErisX Says About Receiving This DCO License
According to ErisX’s blog post, Thomas Chippas, the Chief Executive Officer of ErisX, said:
ErisX is unique in that for our digital asset market, we have divided the trading and settlement functions using traditional DCM (exchange) and DCO (clearing) models. This reflects the structure that institutional investors expect from other asset classes and will help drive these markets toward greater relevance and accessibility.
ErisX Futures will be offered through Eris Exchange, LLC, which is a CFTC-registered DCM, and Eris Clearing, LLC, which is a CFTC-registered DCO.
Featured Image Courtesy of ErisX