Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
Citing massive open positions and interest for its Bitcoin futures contracts, CME Group requested CFTC to double the limit of monthly contracts traded.
The Chicago Mercantile Group (CME) has seen a massive surge in the trading volumes for its Bitcoin futures contracts, over the last few months. Taking a step ahead, the CME group has requested the U.S. Commodity Futures Trading Commission (CFTC) to allow it to double the trading limits from 5000 BTC to 10,000 BTC tokens.
Currently, CFTC has kept an upper limit of 1000 Bitcoin Futures contracts per individual trader using the CME platform. In a letter to CFTC, the CME Group has requested to double this limit to 2000 Bitcoin contracts. With each contract size of 5 BTC, this means that the trader’s maximum exposure monthly could be up to $1000 million. The letter reads:
“Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) hereby notifies the Commodity Futures Trading Commission (“CFTC” or “Commission”) that it is self-certifying an increase of the spot month position limits for the Bitcoin Futures contract (the “Contract”), commencing with the October 2019 contract month and beyond.”
In July 2019, the CME exchange saw a huge surge with the open interests reaching an all-time high of 6100 contracts. Thus, the company sees a huge potential to grow and wants to increase the limits “based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market,” said a CME spokesperson.
Subjected to CFTC approval, CME Group says that the spot-month limits for October 2019 will turn effective at the time of closure of trading this month on September 30.
Increased spot-month position limits in CME Bitcoin futures will be available Sept 30, pending reg review. Limits will increase to 2K contracts, equal to 10K bitcoin, to provide customers greater flexibility to trade and hedge bitcoin price risk. #bitcoinhttps://t.co/8lu1hRYNDW pic.twitter.com/z0ZSUgnGyx
— CMEGroup (@CMEGroup) September 12, 2019
The major reason that CFTC puts these position limits is to avoid “excessive speculation” for any given commodity having a futures product. In absence of these limits, heavy speculation can also lead to massive asset price swings and volatility which can ultimately result in massive losses.
CFTC explains that “in general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low”.
CME offers cash-settled Bitcoin futures contracts and was the first one to start it in December 2017. Until March 2019, CME Group was competing with the CBOE exchange for cash-settled Bitcoin futures contracts. However, the CBOE Group decided to wrap up its operations after which CME has been seeing a huge surge and interest for Bitcoin futures.
The latest decision to double its contract offering could be due to the upcoming launch of Bakkt Bitcoin futures ahead this month. Although Bakkt has announced that its Bitcoin futures contracts will be physically-settled, it will certainly raise the competition bar higher.