Today the London Stock Exchange Group’s (LSEG) LCH SA announced it received regulatory approval to provide clearing services for Bitcoin Index futures. It’s been almost a year since LCH revealed plans to provide central clearing for UK-regulated digital asset exchange GFO-X.
LCH launched a fully segregated division, LCH DigitalAssetClear, which includes a separate default fund and dedicated clearing rules. It plans to launch the clearing service later in 2024.
For this application the sheer number of regulators involved makes this a major undertaking. LCH is based in France, so it needed approval from the Banque de France’s ACPR and the capital markets regulator AMF. At a European level it had to get authorization from the European Securities and Markets Authority (ESMA) and the LCH’s EMIR College, which includes around 19 national regulators.
“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,” said Corentine Poilvet-Clédière, CEO, LCH SA.
Meanwhile, the Bitcoin derivatives are based on the GFO-X/Coin Metrics Single Asset Real-Time Bitcoin Index (GFOXBR). FCA regulated GFO-X recently secured a $30 million Series B funding led by M&G Investments, bringing total funds raised to $50 million.
While the concept of central clearing might appear anathema to the crypto community, it’s a different story for the institutional crowd. One of the benefits is reducing counterparty risks, a major factor in the crypto sector, given the multiple bankruptcies. Additionally, institutions need netting and minimal technical adaptations.
Stateside, Schwab, and Citadel-backed EDX Markets has a clearing arm. And startup ClearToken is developing a UK-based central counterparty that plans to support multiple trading venues.
