It looks like there is a growing market for regulated exchange trading of cryptocurrencies.
ErisX, the U.S. futures exchange best known for offering listed interest rate swap futures, just announced plans to launch a derivatives exchange (DCM) and clearing organization (DCO) that will offer digital asset futures and spot contracts on one platform. The exchange plans to offer contracts on bitcoin, bitcoin cash, ethereum and litecoin.
This is going a step beyond the CME and the Cboe, which began offering cryptocurrency futures in December 2017.
Eris needs a DCO license to clear its crypto contracts; that application is pending with the CFTC.
The exchange already had a number of investors on board, having been formed by some of Chicago’s largest prop firms, including DRW, Nico Holdings, CTC Holdings, and it has brought in newer ones as well, including Pantera Capital and Third Stone Partners, as well as CMT Digital, Susquehanna International Group, XR Trading, C2 Capital Management and ED&F Man Capital Markets Inc. A number of these investors already have extensive crypto histories.
“We’re obviously reaching out to all manner of entities on this project,” said Thomas Chippas, CEO of ErisX.
Chippas joined the exchange in August. He will be the CEO of ErisX, and Eris Exchange’s founder, Neal Brady, will become executive chairman of ErisX as well as the CEO of Eris Innovations, Eris’s product licensing business.
Eris currently is a CFTC-regulated DCM license holder for interest rate futures. Eris Interest Rate Swap Futures currently listed on Eris Exchange will migrate to CME Group on December 2, 2018, including a transfer of open interest.
By offering first spot bitcoin and then futures on bitcoin cash, ethereum and Litecoin as well, Chippas said, “We’re sticking to the things that are clearly and cleanly digital assets.”
“We think there is a big market to offer spot and futures on cryptocurrencies on a single platform with physical delivery for both futures and spot,” he said. “We are building on the platform, which is already in place.”
The spot trading of the coin will launch first, meaning you can exchange cash for coins on the platform. Physically delivered futures will come next – this is different from the crypto futures at the Cboe and the CME, which are cash settled.
Chippas said he thinks some of the crypto contracts in the market today may be suitable for only a certain class of investor. The ErisX contracts will be a smaller size – subject to the CFTC’s approval – to be geared toward a more universal client base. The exchange has not determined the size yet.
JB Mackenzie, managing director of futures and forex at TD Ameritrade, said their customers appreciated the price discovery in the past nine months in the Cboe cryptocurrency futures and were hungry for additional products – not just futures but the ability to access the spot markets.
TD’s retail trader clients “are looking for a marketplace similar to the other capital markets out there, where they can transact where there is a legitimacy and a transparency,” Mackenzie said. “If you look at the futures marketplace, you have price discovery whether up or down. You allow the market to decide on what is the appropriate price. Retail traders want that capital markets regulation and transparency.”
ErisX’s new platform could compete with the ICE subsidiary Bakkt, which plans to launch bitcoin futures trading in November, as well as Bcause and Seed CX. And who knows what else is in the pipeline.
Thom Thompson contributed to this article.