Eugene Grygo, Chief Content Officer, FTF News
Much has been happening in the crypto-asset space and it is difficult to sort out how much of it will become reality for financial services firms especially for operations staffs.
Given this uncertainty, an emerging platform dubbed Bakkt promises to be “an open and regulated, global ecosystem for digital assets.” It has been getting attention in large part because it has the support of the Intercontinental Exchange (the parent of NYSE), Microsoft, Starbucks, the Boston Consulting Group and other prominent players.
“As an initial component of the Bakkt offering, Intercontinental Exchange’s U.S.-based futures exchange and clearing house plan to launch a one-day physically delivered Bitcoin contract along with physical warehousing in November 2018, subject to CFTC review and approval,” Bakkt officials say. “These regulated venues will establish new protocols for managing the specific security and settlement requirements of digital currencies. In addition, the clearing house plans to create a separate guarantee fund that will be funded by Bakkt.”
The initial use cases for the “Bakkt ecosystem” may include “federally regulated markets and warehousing along with merchant and consumer applications. Its first use cases will be for trading and conversion of Bitcoin versus fiat currencies,” officials said when Bakkt was announced in August.
Since the announcement, crypto-currencies such as Bitcoin have been on a rollercoaster ride causing agita for many in the crypto markets and probably a few challenges for those at Bakkt.
“We’re taking a transparent approach to engage across the industry as we begin testing and onboarding in November, and trading and warehousing in December, subject to CFTC approval,” says Kelly Loeffler, CEO of Bakkt, in a blog posting date Oct. 15.
Since her post and despite the crypto-asset market turmoil, officials at ICE Futures U.S. said that they “will list the new Bakkt Bitcoin (USD) Daily Futures Contract for trading on Wednesday, December 12, 2018.”
In fact, more details have been unveiled for the Bakkt Bitcoin (USD) Daily Futures Contract.
It is described as “a physically-settled daily futures contract for bitcoin held in Bakkt LLC, ICE’s Digital Asset Warehouse, and will be cleared by ICE Clear US, Inc. Each futures contract calls for delivery of one bitcoin held in the Bakkt Digital Asset Warehouse, and will trade in U.S. dollar terms. One daily contract will be listed for trading each exchange business day,” according to an ICE Futures announcement, dated Oct. 22. (More contract details can be found here.)
But there are many steps ahead especially for institutions that want to explore crypto-assets, as Loeffler acknowledges.
“The connectivity and participation requirements of large financial institutions necessarily differ from retail participants on unregulated cash-market crypto-exchanges,” Loeffler says. “These include things like access to FIX API’s, consolidated ticker feeds, regulatory reporting features and participation agreements. Notably, Bakkt will not rely upon ISDA agreements — which are used in the over-the-counter swaps markets.”
The current futures industry infrastructure, “which has a broad range of trading and risk management applications, will serve as a second layer on the blockchain to facilitate more seamless access for institutions,” Loeffler says. “The existing cash crypto market is highly fragmented, which creates inefficiencies and makes market access and information more costly. The availability of Bakkt’s regulated physical delivery market price is designed to offer more information in real-time and greater transaction efficiency.”
Loeffler also addresses the extra layers of security that will be needed: “… while the purchases and sales of Bitcoin in our futures market will be pre-funded, which virtually eliminates the risk of default, the clearing house will gain a separate guaranty fund, funded by Bakkt, which is dedicated to the segregated Bitcoin assets of Bakkt’s clients.”
So, while many key details are pending, it’s clear that Bakkt could be the start of something big.
The industry and Ops teams need to watch this space.
Need a Reprint?