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Derivatives trade group warns CFTC of bitcoin futures' risks to clearing firms

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Derivatives trade group warns CFTC of bitcoin futures' risks to clearing firms

A key futures market trade organization is concerned about how the impending introduction of bitcoin futures products may impact some of Wall Street's biggest banks.

In a Dec. 6 letter, the Futures Industry Association said clearing member firms were left out of conversations surrounding bitcoin futures plans from Cboe Global Markets Inc. and CME Group Inc., which will launch their products for trading on Dec. 10 and Dec. 18, respectively.

On Dec. 1, the U.S. Commodity Futures Trading Commission said it would permit Cboe and CME to move forward with their self-certified plans to introduce bitcoin futures contracts in the upcoming weeks.

But Futures Industry Association CEO Walt Lukken wrote in the letter that the regulator should have required a more extensive conversation among the exchanges, clearinghouses and clearing member firms. Even though they may not be actively involved in the underlying markets, clearing members have grown wary that they will "bear the brunt of the risk" associated with the bitcoin futures products, Lukken wrote.

"We remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based and whether exchanges have the proper oversight to ensure the reference products are not susceptible to manipulation, fraud and operational risk," Lukken wrote in the letter addressed to CFTC Chairman Christopher Giancarlo.

Members of the Futures Industry Association include Goldman Sachs & Co. LLC, Wells Fargo Securities LLC and J.P. Morgan Securities LLC, among others.