The U.S. derivatives regulators have canceled the registration of the swap execution facility or SEF of TeraExchange, a US-based Bitcoin company. The company, which is based out of New Jersey, received the licensing back in 2016. It was among the first companies in the U.S. to receive the license to offer crypto derivatives services. In a largely publicized event, the world woke up to the news of the first Bitcoin derivative transaction being taken place on a regulated and licensed platform. It was a huge success for the Bitcoin community and was considered the first step towards the Bitcoin revolution.
Derivative trading is considered to be one of the best ways to hedge Bitcoin holding while reducing their risks. It led to the beginning of a new era where the Bitcoin derivative market could grow. It also led to large banks and financial institutions to invest capital into Bitcoin. But, the platform has not facilitated any transaction in the past three years continually. The U.S. Commodity Futures Trading Commission released a statement stating that TeraExchange, LLC, has been provided with an Order of Reinstatement. The order, which was affected immediately, was issued based on Section 5 of the Commodity Exchange Act and also the CFTC Regulations 37.3(b) along with 37.3(d).
TeraExchange was one of the first companies to be offered a Bitcoin swap agreement in 2015. It laid out the legal framework that allowed any two parties to exchange their cryptocurrencies based on certain standard terms. The regulatory body found that the decision was taken after the company failed to stop wash trading and also prearranged trading on its platform. The CFTC came to know about two suspicious offsetting transactions but was told that it was just to test their systems. But, the very next day, the company released a press release informing that the first Bitcoin derivative transaction took place on the exchange. Since CFTC sees such transactions and its publicity as a violation of their rules, TeraExchange was asked to clarify its stand. The company did not admit or deny any wrongdoing and settled those charges with CFTC without paying any fines.
SEFs work under CFTC’s regulations if they want to clear any OTC products such as OTC interest rates or credit swaps. The new services were included in the draft as part of the Frank Act and Consumer Protection Act (2010). According to this, the NDFs are financial establishments that needed clearing from the regulatory body. It helped the government in providing pre-trade and also post-trade transparency. In the past, the U.S. regulatory body has issued licensing to many blockchain start-ups and companies. But it was not just the crypto market where the facility did not take off. Only a few of the big companies are now operating in the market, such as CME Group, ICE, Tullet Prebon, and Bloomberg. Here, Bloomberg has about 50 percent of the total swap trade market.
There are other companies such as LedgerX that are not careless as TeraExchange. The company is already taking multiple steps and going beyond what is expected from them to ensure compliance with the regulation. Apart from registering themselves with the SEF, they have also registered themselves with the derivatives clearing institution. Even though the company already has the SEF registration, it is not yet ready to launch its services. Once they have both the licenses, they would launch themselves in the market. Thus, even with the setback of TeraExchange, the future of bitcoin derivates looks good.