CME Bitcoin Futures Frequently Asked Questions
1 Dec 2017 By CME Group Topics: General Education, Equity Index
This FAQ is provided for informational purposes and does not constitute the rendering of legal or other professional advice. Individuals and entities should in all cases seek advice from their independent legal and professional advisors regarding the matters discussed below.
Launch & Overview
1. When will CME Group launch Bitcoin futures contracts?
CME Group plans to launch Bitcoin futures contracts on December 18, 2017, pending regulatory review and certification.
2. What is the relationship between Bitcoin futures and the underlying spot market?
CME Bitcoin futures are based on the CME CF Bitcoin Reference Rate (BRR), which aggregates bitcoin trading activity across major bitcoin spot exchanges between 3:00 p.m. and 4:00 p.m. London time.
3. On which exchange will Bitcoin futures be listed?
Bitcoin futures will be listed and cleared on CME, a US-registered designated contract market (DCM) and derivatives clearing organization (DCO).
4. What regulation will apply to the trading of Bitcoin futures?
The trading and clearing of Bitcoin futures will be regulated by the Commodity Futures Trading Commission (CFTC), the regulatory body with exclusive jurisdiction over US Bitcoin futures markets.
5. What does self-certification with the CFTC entail?
The Commodity Exchange Act (CEA) expressly permits exchanges to list new products by self-certifying that the listing of the new product for trading complies with the CEA and CFTC regulations. This is the most commonly used method employed by the CME Group Exchanges and all other exchanges to list new futures products for trading. On December 1, the Exchange self-certified the new Bitcoin Futures contract with the CFTC. This certification authorizes the Exchange to list the Bitcoin Futures contract for trading effective on trade date December 18.
6. What accounting and other regulatory treatment is afforded to Bitcoin futures in my local jurisdiction?
As with any other derivatives product, the accounting treatment of positions in Bitcoin futures, and the general local regulatory treatment of trading in Bitcoin derivatives, may differ by country and between competent jurisdictions. Market participants are solely responsible for complying with all applicable US and local requirements. Market participants, particularly those with no experience in trading Bitcoin derivatives, should seek professional counsel as necessary and appropriate to their circumstances.
7. Which platforms will support Bitcoin futures trading?
Central limit order book via the CME Globex platform and ex-pit trade submission for clearing via CME ClearPort and CME Direct.
8. What are the contract specifications?
|Contract Unit||5 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR)|
|Minimum Price Fluctuation||Outright: $5.00 per bitcoin = $25.00 per contract
Calendar Spread: $1.00 per bitcoin = $5.00 per contract
|Trading Hours||CME Globex and CME ClearPort: 5:00 p.m. – 4:00 p.m. CT Sunday – Friday|
|Product Code||Outright: BTC|
|Listing Cycle||Nearest 2 months in the March Quarterly cycle (Mar, Jun, Sep, Dec) plus the nearest 2 “serial” months not in the March Quarterly cycle.|
|Termination of Trading||Last Day of Trading is the last Friday of contract month.
Trading in expiring futures terminates at 4:00 p.m. London time on Last Day of Trading.
|Position Limits||Spot Position Limits are set at 1,000 contracts. A position accountability level of 5,000 contracts will be applied to positions in single months outside the spot month and in all months combined.|
|Block Minimum||5 contracts|
|Price Limits||Price limits for a given Business Day are calculated in relation to a reference price, which generally will be set at the most recent Bitcoin Futures settlement price, calculated at 4:00 p.m. London time each Business Day. The reference price may be adjusted at the sole discretion of the Exchange to incorporate BRR changes on non-trading days. A price limit of 20% above or below the reference price and special price fluctuation limits equal to 7% above or below the reference price and 13% above or below the reference price apply. Trading will not be permitted outside of the 20% range above or below the reference price.|
|Settlement||Cash settled by reference to Final Settlement Price, equal to the CME CF Bitcoin Reference Rate (BRR) on Last Day of Trading.|
9. Will Bitcoin futures be available for trading 24/7?
No – unlike the BRR Index, which is published everyday, Bitcoin futures will be available to trade during the hours specified in the contract specifications in question #8.
10. Will block transactions be allowed for Bitcoin futures?
Yes, block transactions will be allowed for Bitcoin futures, subject to reporting requirements per Rule 526. The minimum block threshold will be 5 contracts.
11. Will Bitcoin futures be EFP/EFRP-eligible?
Yes, Bitcoin futures will be EFP/EFRP-eligible.
12. Will Basis Trade at Index Close (BTIC) for Bitcoin futures be available for trading on Day 1?
CME Group will launch BTIC for Bitcoin futures in H1 2018.
13. How will the Bitcoin futures daily settlement price be determined?
Initially, daily settlement will be based on the volume-weighted average price (VWAP) of CME Globex trades between 3:59:00 p.m. and 4:00:00 p.m. London Time1 rounded to the nearest tradable tick. CME will reassess the daily settlement process as the Bitcoin futures market matures.
14. Will the Bitcoin futures be subject to price limits?
Yes, Bitcoin futures will be subject to daily price fluctuation limits of 7%, 13% and 20%. These limits apply to both upside and downside price changes relative to the prior day’s Bitcoin futures settlement price. Please note that the first two price limits, +/- 7% and +/- 13%, are soft limits. Meaning, if the lead month contract hits limit-up or limit-down, a two-minute monitoring period will begin. During this monitoring period, trading will continue within the applicable price limit, but may not exceed that limit.
If, at the end of the two-minute period, the contract comes off that limit, then trading will continue without a halt at the expanded price limits of +/- 13% and +/- 20%, respectively.
Conversely, if the contract is still at the limit at the end of the monitoring period, then there will be a two-minute trading halt where the contract will enter into “a pre-open” market state. During the pre-open market state, trade matching does not occur but orders can be entered, modified or cancelled. After the two-minute halt, the contract will resume trading at the expanded price limits of +/- 13% and +/- 20%, respectively.
The +/- 20% limit is a hard limit. Meaning, if the contract trades at +/- 20% limit, a trading halt will not be triggered and price limits will not expand; instead, trading will continue at or within the +/- 20% limit for the remainder of the trading session.
15. How will the Bitcoin futures final settlement price be determined?
The final settlement value will be based on the CME CF Bitcoin Reference Rate (BRR) at 4:00 p.m. London time on the expiration day of the futures contract.
16. What is the maximum order size for Bitcoin futures on CME Globex?
The maximum order size will initially be 100 contracts.
17. Will CME Group also list options on Bitcoin futures?
CME will not list options initially, but will reassess once the futures market develops and as customer demand evolves.
18. Into which asset class will Bitcoin futures be classified?
CME will categorize Bitcoin futures under Equity Index and Alternative Products. As such, any questions related to the launch of Bitcoin futures can be directed to firstname.lastname@example.org.
19. Through which market data channel will these products be available?
Bitcoin futures market data will be available on MDP Channel 318 as well as on theDataMine portal. Additionally, market data for the underlying BRR Index will be available 24/7 on the DataMine portal.
CME CF Bitcoin Reference Rate (BRR)
20. What is the CME CF Bitcoin Reference Rate (BRR)?
Designed by CME Group and Crypto Facilities Ltd, around the IOSCO Principles for Financial Benchmarks, the BRR is a daily reference rate of the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. It is representative of the bitcoin trading activity on Constituent Exchanges and is geared towards resilience and replicability.
21. How is the BRR calculated?
The BRR is calculated based on the relevant bitcoin transactions on all Constituent Exchanges between 3:00 p.m. and 4:00 p.m. London time. The price and size of each relevant transaction is recorded and added to a list which is portioned into 12 equally-weighted time intervals of 5 minutes each. For each partition, a volume-weighted median trade price is calculated from the trade prices and sizes of the relevant transactions across all the Constituent Exchanges. The BRR is then determined by taking an equally-weighted average of the volume-weighted medians of all partitions.
22. Where can I find more information on the BRR Constituent Exchanges?
More information can be found on the CME website.
23. Are Constituent Exchanges KYC/AML (Know Your Client/Anti-Money Laundering) compliant?
Although all Constituent Exchanges in the BRR are unregulated, each exchange has proactively instituted KYC/AML policies.
Fee & Margin Details
24. What are the fees for Bitcoin futures?
Bitcoin futures will be priced at a premium to standard Equity Index futures, but in line with the pricing conventions of other premium products. Fees can be found on the CME Fee Schedule when available.
25. Will CME introduce fee incentives for Bitcoin futures?
Yes, through May 31, 2018, CME will provide a 50% discount to all market participants for CME Globex spread transactions.
26. In which division will the Bitcoin futures reside?
Bitcoin futures will be listed on CME and will reside in the IOM Division.
27. What are the margin requirements for Bitcoin futures?
Margins will be calculated using CME’s standard benchmarking process for newly-launched contracts. As of December 1, 2017 the estimate of initial margin that CME Clearing would require is 35%, though this is subject to change. Margin offsets with other CME products will not be offered initially. Additionally, FCMs may require a margin level beyond CME Clearing’s minimum requirement.
28. Will there be a cap on clearing liability for Bitcoin futures?
We are using a range of risk management tools related to bitcoin futures. CME Clearing retains the right to impose exposure limits, additional capital requirements, and other targeted risk management tools if we see exposures that we determine might become a concern in any product or market. Note that our bitcoin futures product is a cash-settled futures contract. As such, margins will be set in line with the volatility and liquidity profile of the product. Further, we also have the ability for clearing members to impose trading or exposure limits on their clients. Other tools may include increased capital or margin requirements in cases where exposures increase beyond reasonable levels.
29. Where will Bitcoin futures fall in CME Clearing’s guarantee fund?
Bitcoin futures will fall into CME’s Base Guaranty Fund for futures and options on futures, as any newly listed futures.
For all other inquiries regarding margins or CME Clearing’s approach to risk management, please contact Lee Betsill (email@example.com) or Matt Waldis (firstname.lastname@example.org).
30. Will there be on-screen market makers for the Bitcoin futures?
Yes, CME will introduce a market maker program to support the on-screen market development of Bitcoin futures.
31. What is CME Group’s policy regarding hard forks?
CME is developing a hard fork policy for capturing cash market exposures in response to viable forks. The policy may involve cash adjustments to position holders or listing related futures that are also issued to position holders.
32. How can I access to CME Globex?
To access CME Globex, you must have a relationship with a CME Clearing Member Firm.
33. Where can I find more information on the CME’s Bitcoin futures launch?
Visit www.cmegroup.com/bitcoinfutures for the latest information on Bitcoin futures.
34. Where can I see prices for Bitcoin futures?
Delayed quotes will be available on cmegroup.com. You can also access quotes through major quote vendors.
Matters discussed herein may be pending and subject to regulatory and additional internal review.
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The information herein has been compiled by CME Group for general purposes only. Although every attempt has been made to ensure the accuracy of the information, CME Group assumes no responsibility for any errors or omissions.
Futures trading is not suitable for all investors and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.
All examples used herein are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME rules. Current rules should be consulted in all cases.
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