By Michelle Price and John McCrank
WASHINGTON (Reuters) - The U.S. derivatives regulator said on Friday it would allow CME Group Inc and CBOE Global Markets Inc to list bitcoin futures, after the rival bourses showed their proposed contracts and trading arrangements met necessary requirements.
The announcement by the Commodity Futures Trading Commission paves the way for CME and CBOE to become the first traditional U.S. regulated exchanges where bitcoin-related financial contracts can trade, a move that will lead to increased regulatory scrutiny of the biggest and best-known digital currency.
CME said on Friday it would list its bitcoin futures contract, which like CBOE's will be priced against and settled in the cash bitcoin market, on Dec. 18. CBOE has not yet set a launch date but has said it plans its listing by year-end.
Bitcoin soared above $11,000 for the first time this week, up tenfold year-to-date and prompting multiple warnings of a bubble.
To guard against volatility, CME and CBOE will enact stricter-than-usual risk-management safeguards, including initial margin requirements of between 35 percent and 40 percent.
"This is a tacit approval for the industry as a whole; digital assets are now mainstream," said Charles Hayter, chief executive officer of interactive cryptocurrency platform CryptoCompare. "This opens up the doors to exchange traded funds and institutional money."
The virtual currency, which had been trading at around $10,150 on the Luxembourg-based Bitstamp exchange before the news, jumped to as high as $10,513 in the 20 minutes that followed, leaving it up more than 5 percent on the day. It was last up 6.6 percent at $10,600. CME and CBOE have also agreed to enter into information-sharing agreements and to send the CFTC data on the settlement process so the regulator can conduct its own surveillance.
CFTC Chairman Christopher Giancarlo warned investors, however, that the nascent underlying bitcoin cash markets remained largely unregulated and mostly beyond the commission's purview.
The futures exchanges must coordinate to help spot market manipulation, flash rallies, trading outages and other problems on the unregulated exchanges where bitcoin is traded, as they could affect futures prices, he said in a statement.
"Nevertheless," Giancarlo added, "investors should be aware of the potentially high level of volatility and risk in trading these contracts.”
Under CFTC regulations, designated contract exchanges such as CME and CBOE's CFE do not need prior approval from the commission to list products for trading. Instead, they only have to file a written self-certification with the regulator.
Under the self-certification process, which is a quirk of the futures market, an exchange confirms that the product complies with the Commodity Exchange Act and CFTC regulations, including a key provision that requires the contract is not susceptible to manipulation.
CME has been vying with CBOE to introduce the first bitcoin-related financial product.
Nasdaq Inc also plans to list a futures contract based on bitcoin in 2018, Reuters reported earlier this week.
(Reporting by Michelle Price and John McCrank; Additional reporting by Jemima Kelly and Gertrude Chavez-Dreyfuss; Editing by Leslie Adler and Lisa Von Ahn)