CFTC Registers Eris Clearing for Fully Collateralized Crypto Futures

The U.S. Commodity Futures Trading Commission registered Eris Clearing, LLC as a derivatives clearing organization on July 1, 2019, authorizing the ErisX affiliate to clear fully collateralized virtual-currency futures under the Commodity Exchange Act.

The unanimous commission action supplied a central piece of regulated market infrastructure for ErisX. Its affiliated exchange, Eris Exchange, LLC, was already registered as a designated contract market, the venue category on which futures can be traded. The new order covered the separate clearing function that stands between counterparties and administers collateral and settlement.

That distinction mattered in 2019 because cryptocurrency companies were attempting to connect digital assets with structures familiar to established futures-market participants. ErisX described its intended products as physically delivered digital-asset futures. The CFTC order itself was narrower: it registered the clearing organization and permitted it to clear fully collateralized virtual-currency futures subject to specified conditions. It did not certify a particular contract, begin trading or establish a launch date.

A fully funded clearing model

Under the order, a contract qualified as fully collateralized when Eris Clearing continuously held enough funds to cover the maximum possible loss a counterparty could incur when the contract expired or was liquidated. A companion CFTC staff letter said participants would have to deposit eligible collateral before execution and pass a pre-trade credit check. Eligible collateral could include U.S. dollars or the commodity underlying the contract, identified in the letter as bitcoin.

This structure differed from conventional margined futures, where participants post only part of a position’s value and may face subsequent margin calls. Full collateralization was designed to reduce the clearinghouse’s exposure to a participant failing to meet such a call. It also tied up more capital, an important limitation when assessing the model’s likely reach or efficiency.

The Division of Clearing and Risk granted Eris Clearing conditional no-action relief from several requirements that staff considered unnecessary or inapplicable to that model. Among them were certain stress-testing, participant-reporting and daily-reporting provisions. The relief rested on Eris Clearing’s representations that each trade would be fully funded before execution; it was not a general exemption for cryptocurrency clearinghouses.

The letter also described a constrained opening configuration. Initial participants were expected to be self-clearing members, and Eris Clearing initially planned to clear only contracts traded on Eris Exchange. The registration order did not allow a futures commission merchant to clear on behalf of customers until applicable customer-clearing rules had been submitted to the CFTC.

Approval with operational conditions

Registration imposed obligations beyond holding collateral. Eris Clearing had to keep member property separate from its own funds, disclose risks including theft, loss or hacking of virtual currency, obtain and endeavor to maintain commercially reasonable insurance against theft or loss of participant virtual-currency collateral, and arrange annual independent audits of its virtual-currency balances. The order also required compliance with the Bank Secrecy Act and specified sanctions-related laws and regulations as though the clearinghouse were a covered financial institution.

The company could not commence clearing merely because the order had been issued. The document required Eris Clearing first to demonstrate, to the satisfaction of the CFTC’s Division of Clearing and Risk, compliance with separate commitments made to the division. ErisX said it planned to introduce futures in 2019 but provided no specific launch date in the contemporaneous account.

The July 1 decision was therefore an infrastructure authorization rather than proof of demand, liquidity or institutional adoption. It gave ErisX a regulated exchange-and-clearing framework through which crypto futures could eventually operate, while leaving product terms, launch timing, participation and trading activity unresolved.