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Bitcoin Futures Market Bakkt Makes Its First Acquisition

Bakkt may not be able to launch its planned bitcoin futures exchange this month as planned, but that isn’t stopping the company from developing its projects.

CEO Kelly Loeffler announced Monday that the New York Stock Exchange–backed startup was acquiring “certain assets” belonging to Rosenthal Collins Group (RCG), an independent futures commission merchant. RCG had previously announced it was selling its customer accounts and brokerage business to British firm Marex Spectron.

The acquisition will help Bakkt improve its risk management and treasury operations, Loeffler wrote, adding that the deal will also help improve Bakkt’s anti-money laundering/know-your-customer operations.

The transaction is expected to be finalized next month.

Referencing a regulatory delay in launching the company’s anticipated futures exchange, Loeffler added:

“This acquisition underlines the fact we’re not standing still as we await regulatory approval by the CFTC for the launch of regulated trading in our crypto markets. Our mission requires significant investment in technology to establish an innovative platform, as well as financial market expertise to deliver the most trusted fintech ecosystem for digital assets.”

Bakkt previously announced it intention to launch its futures exchange on Jan. 24, 2019. However, the company is still waiting on approval through the Commodity Futures Trading Commission, as it intends to custody bitcoin for clients in its own “warehouse.”

The CFTC must first start a 30-day comment period, allowing the general public to weigh in on the proposal, which the regulator has yet to do.

This means that Bakkt will not be able to launch on Jan. 24. Loeffler’s latest announcement did not include a revised estimated launch date.

Michael Casey, Kelly Loeffler, Jeff Sprecher image via CoinDesk archives

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Launch of Bakkt Bitcoin Futures Market May Get Postponed Again

Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, is likely to delay the launch of Bakkt, its bitcoin futures trading and custody platform, a second time, CoinDesk has learned.

The company last set Jan. 24 as the launch date. However, ICE has yet to receive the necessary approvals from the U.S. Commodity Futures Trading Commission (CFTC), and at the pace the agency has been moving, it is unlikely that approvals will be secured in time to hit that target.

To be clear: That does not mean the CFTC won’t ultimately approve the plan. A person familiar with the agency’s inner workings said even a Jan. 30 launch was still plausible, meaning the delay could be just a matter of days.

Specifically, the CFTC must grant an exemption for Bakkt’s plan to custody bitcoin on behalf of its clients in its own “warehouse,” according to sources familiar with regulatory discussions of the plan. CFTC regulations normally require that customer funds be held by a bank, trust company or futures commission merchant (FCM).

The agency’s staff has finished reviewing Bakkt’s exemption request and passed it to the commission on Friday, one source said. Now the commissioners have to vote on whether to put out the proposal for public comment. After the 30-day comment period, the commissioners would likely take at least a couple days to read the comments, and then vote on the proposal itself.

But here’s the deal: Monday and Tuesday are now federal employee holidays. So unless these government officials decide to work on their days off, the earliest the commissioners are likely to vote on a public comment period and thereby start the 30-day clock is Wednesday, Dec. 26, the day after Christmas.

That already would push any final vote past Bakkt’s Jan. 24 launch target, even without taking into account the time needed to read the public comments. The possibility of a U.S. government shutdown threatens to further delay the process.

The exchange is likely to issue an updated launch target date, but not until next week, another source said.

This would be the second postponement. ICE had originally aimed to launch Bakkt in December, but last month it said that the “volume of interest” in the company and the “work required to get all the pieces in place” necessitated a delay.

Unlike the bitcoin futures offered by CME Group and Cboe, Bakkt’s will be physically settled, meaning actual bitcoin will change hands rather than cash when the contracts expire.

Photo via Stan Higgins for CoinDesk. From left: Michael J. Casey, the chairman of CoinDesk’s advisory board, interviews Bakkt CEO Kelly Loeffler and ICE chief Jeffrey Sprecher at Consensus: Invest 2018.

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Blockchain Smart Contracts Subject to Financial Laws, Says CFTC Primer

One of the top U.S. financial regulators, the Commodity Futures Trading Commission (CFTC), has released its second guide to understanding smart contracts, with a reminder that the technology is covered under financial rules.

Announced Tuesday, the primer is part of agency’s fintech initiative LabCFTC. Described as an “educational tool” rather than official policy, it covers the basics of blockchain smart contracts including their history, characteristics, case studies, potential use cases and perceived risks.

Stating that the concept of a smart contract was discovered some 20 years ago by computer scientist Nick Szabo, the CFTC states that the self-executing programs are only as smart as the “information feed it receives and the machine code that directs it.”

The agency says that smart contracts can offer the benefits of reduced costs and transaction times, lowered counterparty and settlement risks, and increased security. At the same time, though, they present challenges, including operational, technical and cybersecurity risks, alongside the potential for fraud, manipulation, reduced transparency and accountability, says the CFTC.

On the topic of regulation, the CFTC points out that that smart contracts are subject to existing laws, including the Commodity Exchange Act (CEA) and anti-money laundering (AML) rules, depending on their application or the type of product they are linked to.

“Existing law and regulation apply equally regardless what form a contract takes. Contracts or constituent parts of contracts that are written in code are subject to otherwise applicable law and regulation,” the primer reads.

In order to protect investors and their capital, the agency said, it will ensure that all transactions are subject to the CEA.

The LabCFTC initiative was launched in May last year and the first primer was released in October 2017 on virtual currencies covers the basics of the technology, as well as a number of use cases.

The guide also comes just over a month after a Brian Quintenz, a commissioner at the CFTC, warned that smart contract coders could be held liable if they knowingly use the technology to create functions that are considered predictive “event contracts.”

CFTC image via Shutterstock 

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Law Firm Perkins Coie Adds Ex-CFTC Counsel to Dedicated Crypto, Blockchain Group

Law firm Perkins Coie has hired Kari Larsen after identifying her “understanding of the impact that blockchain and crypto will have” on the legal sector.

U.S. international law firm Perkins Coie (PC) announced it had hired a former counsel for the country’s commodities regulator to work in its blockchain practice in a press release Nov. 6.

Kari Larsen, who previously worked at the Division of Enforcement of the Commodity Futures Trading Commission (CFTC), will now be based at PC’s Blockchain Technology & Digital Currency industry group.

The group originally formed in 2013, with PC keen to gain an understanding of the complex legal landscape which continues to evolve around cryptocurrency and related tokens in the U.S.

“I’m confident that Kari has a true understanding of the impact that blockchain and crypto will have on our industry,” Molly Moynihan, co-chair of the firm’s investment management practice and member of the firm’s management committee commented in the release, adding:

“Her extensive experience representing clients in a wide range of commodity and transactional matters, and regularly providing counsel on global matters related to U.S., U.K. and E.U. commodity laws and regulations, will be a significant advantage to our national practice.”

The move comes as legal advice concerning cryptocurrency handling remains highly sought-after in the weeks leading up to the emergence of fresh offerings targeting institutional investors.

As Cointelegraph reported, Dec. 12 should see the launch of the Intercontinental Exchange’s Bakkt platform, which will offer one-day physical Bitcoin futures. Earlier this week, the  U.S. Chicago Board Options Exchange (CBOE) noted that their BTC futures offering hit record volatility lows in October.

The path to regulatory certainty for Bakkt is complex, commentators have noted this week, some seeing the launch as a crucible for what is possible under the current U.S. climate.

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Law Firm Perkins Coie Taps CFTC Veteran for Blockchain Practice

Kari Larsen, a former executive at bitcoin derivatives startup LedgerX who previously served a stint as counsel for the Commodity Future Trading Commission (CFTC), has joined Perkins Coie LLP.

Larsen was named partner for the firm’s Blockchain Technology and Digital Currency industry group, Perkins Coie said Tuesday.

“Kari brings to bear a deep knowledge of derivative exchange platforms and the commodities sector to represent traders and CFTC registered entities focused on launching innovative products, including cryptocurrency products,” J. Dax Hansen, the industry group’s chair, said in a statement.

Larsen most recently served as counsel for New York-based Reed Smith LLP. Per her LinkedIn bio, Larsen’s remit at Reed Smith included issues surrounding initial coin offerings (ICOs) or token sales. She served at LedgerX as general counsel, chief regulatory officer and chief compliance officer, and worked as counsel in the CFTC’s Division of Enforcement between 1997 and 2000.

In an interview, Larsen said that her time at the CFTC left her with a lasting impression, complimenting the agency for being “sophisticated and nimble” when it comes to investigating new products and markets.”It’s a joy to work with the staff of the CFTC, in my opinion. I look forward to doing more as we look at these challenging aspects to these products [blockchain],” she explained.

Larsen said her interest in emerging markets is what directed her towards blockchain and crypto-related law in the first place, telling CoinDesk:

“I’ve always enjoyed working with markets as they’re emerging and really facing the challenges for creative solutions and yet still having they comfort and security of being within a regulated market.”

Word of the new hire comes just weeks after the firm hired Dana Syracuse, a former NYDFS attorney who aided in the development of the state’s cryptocurrency regulations, as well as the hire of former SEC Branch Chief Valerie Dahiya – both of who have joined the firm’s blockchain industry group.

Image via Shutterstock

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