Tuesday, September 16, 2014

Swap Execution Facility Launches First Bitcoin Swaps

[This story previously appeared in Securities Regulation Daily.]

By Lene Powell, J.D.

A CFTC-registered swap execution facility (SEF) has launched the first regulated platform for bitcoin derivatives, as well as a bitcoin price index. The trading of USD/Bitcoin swaps will be subject to exchange and CFTC regulations. Institutional market makers have already offered to provide continuous markets over a range of tenors, the exchange said in a press release.

Christian Martin, CEO and co-founder of TeraExchange, said the new index would help the growing bitcoin trading community to accurately mark-to-market positions.

Bitcoin regulatory status. A widely-recognized virtual currency, bitcoin has begun to achieve regulated status in some instances. The IRS included it in a notice on the tax treatment of virtual currencies, which it said were treated as property for federal tax purposes.

The SEC has issued an investor alert on bitcoin investments, and pursued a Ponzi scheme based on the currency. In that case, a federal district court said that bitcoin-related investments were securities for the purpose of the federal securities laws because they met the definition of an investment contract. In recent testimony before the Senate Banking Committee, SEC Chair Mary Jo White said that the agency has not concluded that bitcoin is a security rather than a currency, so is not currently looking at rulemaking in this area.

Bitcoin index. TeraExchange is the index administrator and calculation agent for the new Tera Bitcoin Price Index, which uses a dynamic algorithm to compile and filter data in real time from widely used global bitcoin exchanges. The exchanges must execute and maintain an information sharing agreement with TeraExchange in order to be included in the index.

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