Coinbase wins CFTC approval to launch its own US derivatives clearinghouse
In brief
- Coinbase received CFTC approval to launch Coinbase Clearing LLC, a US derivatives clearing organization.
- Registration took effect Monday, covering fully collateralized futures, options on futures and swaps.
- Coinbase's leveraged products are not cleared under the registration, Cointelegraph reported.
- Kraken parent Payward acquired Bitnomial in May, gaining a CFTC-regulated exchange and clearinghouse.
What a clearinghouse actually does
So what does a clearinghouse do? A derivatives clearing organization stands between the buyer and seller in a derivatives trade. It helps manage settlement and counterparty risk, including the case where one party defaults.
Coinbase's new entity has a defined scope. Cointelegraph reported that the registration permits clearing of fully collateralized futures and options on futures, plus swaps, but it doesn't permit the clearinghouse to clear Coinbase's leveraged products.
That limit matters.
Through its derivatives exchange, Coinbase lists US-regulated futures tied to Bitcoin and Ether, as well as commodity and equity-index futures, and it also offers long-dated perpetual-style crypto futures. The approval, as reported, stops short of the leveraged side of that business.
Broker, exchange and now clearing
The clearinghouse sits alongside Coinbase's existing futures broker, Coinbase Financial Markets Inc., and its exchange, Coinbase Derivatives LLC. General counsel Molly Abraham said in a statement that the approval completes the company's end-to-end derivatives infrastructure.
“Today’s CFTC approval completes Coinbase’s end-to-end derivatives infrastructure, enabling us to bring more regulated derivatives products to market with native USDC collateral and 24/7 settlement,” said Molly Abraham, Coinbase’s general counsel.
Cointelegraph described the approval as another step in Coinbase's expansion from a crypto trading platform into a provider of financial market infrastructure.
Kraken took the acquisition route
Coinbase isn't the only crypto company heading this way. Other crypto companies have also moved to bring their US derivatives infrastructure in-house, according to Cointelegraph.
Kraken parent Payward completed its acquisition of Bitnomial in May, picking up a CFTC-regulated exchange and clearinghouse along with a futures brokerage. Payward bought its stack; Coinbase is launching its own clearinghouse to sit next to the broker and exchange it already runs.
Frequently asked questions
What is a derivatives clearing organization?
A derivatives clearing organization stands between the buyer and seller in a derivatives trade. It helps manage settlement and counterparty risk, including the case where one party defaults.
What can Coinbase Clearing LLC clear under its CFTC registration?
According to Cointelegraph, the registration, effective Monday, permits the clearinghouse to clear fully collateralized futures, options on futures and swaps. It doesn't permit the clearinghouse to clear Coinbase's leveraged products.
How does Coinbase's move compare with Kraken's?
Kraken parent Payward completed its acquisition of Bitnomial in May, gaining a CFTC-regulated exchange, clearinghouse and futures brokerage. Coinbase is launching its own clearinghouse, Coinbase Clearing LLC, alongside its existing futures broker and exchange.
