Bakkt has been “cleared to launch.”
The Intercontinental Exchange’s young subsidiary announced Friday that it had acquired a New York state trust charter through the New York State Department of Financial Services (NYDFS). The approval clears the way for the company to begin offering its highly-anticipated physically-settled bitcoin futures contracts. The company intends to launch its products on Sept. 23.
Bakkt, first unveiled last August, has been working on regulatory approvals to begin offering the product over the past year. It intends to offer two types of contracts: a daily and a monthly contract. Both will be settled at the Bakkt Warehouse, a part of its New York-chartered trust company.
In a blog post Friday, Bakkt CEO Kelly Loefler wrote, “Our contracts have already received the green light from the CFTC through the self-certification process and user acceptance testing has begun.”
“With approval by the New York State Department of Financial Services to create Bakkt Trust Company, a qualified custodian, the Bakkt Warehouse will custody bitcoin for physically delivered futures,” she said. “This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure.”
She went on to add:
“Uniquely, Bakkt bitcoin futures contracts will not rely upon unregulated spot markets for settlement prices, thus serving as a transparent price discovery mechanism for the benchmark price for bitcoin. The importance of this differentiator is only amplified by reports of significant manipulative spot market activity, and other concerns such as inconsistent anti-money-laundering policies and weak compliance controls.”
Monthly vs. daily
Loeffler told CoinDesk Friday that Bakkt’s daily contract will be margined, and can provide an alternative to unregulated spot markets for traders.
“The daily contract is designed to provide a margined instrument,” she said. “So when you think about transacting on the futures exchange you’re operating within a [federally] regulated exchange.”
Loeffler didn’t say how much leverage would be available on the margined contracts. Such details are expected to be released in the coming weeks.
As for Bakkt’s monthly futures contract, which were first introduced in May, Loeffler said it added a “forward pricing curve” for investors.
The monthly contracts will let any investors take a view on bitcoin up to 12 months out, she said, adding:
“The other thing that’s important about a monthly contract is what it offers is the ability to take [snapshots] at different times throughout the next year so it adds spread trading … and timing of, for example the halvening coming up next year, the contract, you’ll be able to look out into that time period in 2020.”
The core service Bakkt will offer is “secure regulated custody,” alongside its institutional-scale trading, she said. Bakkt itself is not an exchange, but rather will take advantage of its parent firm’s existing infrastructure.
ICE Futures U.S. will therefore provide the actual exchange services, while Bakkt and its warehouse will provide the custody services its physically-delivered contracts require.
The New York Stock Exchange’s sister firm initially intended to have the U.S. Commodity Futures Trading Commission (CFTC) approve its proposed contracts, and announced a December 2018 launch date when ICE first unveiled the company.
Regulatory hold-ups forced Bakkt to push the date back a number of times. Most notably, Bakkt announced in May 2019 that it had self-certified its futures contracts through the CFTC, departing from its previous goal of having the agency approve the product.
It announced a month later that it would begin user acceptance testing on July 22 — essentially, ensuring that clients and clearinghouses could communicate with Bakkt’s infrastructure — and begin working to onboard potential customers.
Loeffler said Friday that “we have customers and clearing members already in the test environment,” adding:
“We anticipate with the finalization of the Sept. 23 launch date user acceptance testing will accelerate and we will work with customers on onboarding and getting ready for day one.”
While Bakkt may be the first to market, the company faces competition: derivatives provider LedgerX and TD Ameritrade-backed ErisX are also looking to offer bitcoin futures contracts to investors. Seed CX and trueDigital are also working to launch forwards contracts, a similar product.
UPDATE (August 16, 2019, 17:15 UTC): This article has been updated with further detail and comments from Bakkt CEO Kelly Loeffler.
Kelly Loeffler image via CoinDesk archives