EXCLUSIVE - LCH secures approval to clear Bitcoin derivatives
8th April, 2024|Luke Jeffs
LCH said it has secured regulatory approval from the French regulators to start clearing cryptocurrency derivatives through the firm’s Paris-based entity LCH SA
LCH has secured regulatory approval to start clearing derivatives based on cryptocurrencies, marking the LSE Group-owned clearing house’s first move into crypto and a key breakthrough for LCH’s sole cryptoderivatives client GFO-X.
LCH, which is owned and operated by the British group, announced on Monday it has secured regulatory approval from the relevant French regulators to start clearing Bitcoin derivatives through the firm’s Paris-based entity LCH SA.
The clearing house said it has secured approval from the French national competent authorities (ACPR, Banque de France and AMF) and European supervisory authorities (EMIR College, ESMA) to clear cash-settled Bitcoin index futures and options contracts.
Corentine Poilvet-Clédière, CEO of LCH SA, said: ‘We are pleased to have received regulatory approval to launch this innovative service which will enable institutional market participants to trade and clear cash-settled Bitcoin index futures and options within a regulated environment they are familiar with and which will allow them to benefit from LCH SA’s proven risk management capabilities. LCH SA is excited to be working with GFO-X, together with the industry, to provide a regulated marketplace for this asset class as we look to expand our services as a truly international clearing house.’
The approval was granted almost exactly one year after the clearing house said it had agreed terms with GFO-X to clear through a new LCH SA division called LCH DigitalAssetClear Bitcoin index futures and options traded on the venue.
GFO-X and LCH said on April 13 last year the new crypto futures exchange would start trading in the fourth quarter 2023 but this was delayed in October 2023 to the first quarter of 2024, as first reported by FOW.
When contacted by FOW, a spokesperson for GFO-X said on Monday: “The exchange will go live later this year.”
M&G portfolio manager Jeremy Punnett said in December: “This investment enables GFO-X to scale its operations as the business is set to benefit from investors shifting their trading from unregulated venues to regulated exchanges.”
GFO-X is pitching itself as the regulated crypto market for institutional investors like M&G, which has over £330 billion under management.
Punnett said: “The lack of regulated trading venues is materially hampering the growth of the crypto derivatives trading market. The UK has the potential to become a global hub for crypto asset technology and investment, making London an excellent destination for GFO-X’s new global trading exchange."
Speaking to FOW in May last year, the head of GFO-X said the fact his venue will trade only crypto futures and options sets it apart from other regulated exchanges that have already launched their cryptocurrency products.
Arnab Sen, the chief executive of GFO-X, said: “When we look at some of the bitcoin index products in the market already, for these exchanges they are just another product that fits into the existing market infrastructure and are co-mingled with the other listed products.
“This means that clearing members can be reluctant to increase their participation because of the increased contagion risk. A key point of difference is that, for us, this is not just another product like it is for the other exchanges,” he added.
Sen said: “We are building a fully segregated service with a separate default fund, which of course represents a higher hurdle to engagement, but firms are generally more comfortable increasing their exposure because of the segregated nature of the business.”
