Waiting for the federal government to create a regulatory regime for cryptocurrencies could be a lengthy process, so the industry should seek to create a self-regulation organization, according to a CFTC commissioner.
Brian Quintenz, a Republican commissioner speaking as the keynote speaker of the Digital Chamber of Commerce's blockchain summit in Washington, said the model for such SROs is already established, citing the National Futures Association (NFA) and the Financial Independent Regulatory Authority (FINRA). And the target of such an organization would be the spot market occuring on crypto exchanges, where Quintenz said the regulatory impact of the CFTC is limited only to enforcement rather than ongoing regulation. The ability of the CFTC to regulate cryptocurrency futures and options is well-established, he said.
"I think an independent SRO-like entity for spot platforms could significantly contribute to the ongoing efforts to rationlize and formalize crypto currency regulations," Quintenz said in the summit's keynote address. "Initially this entity could establish best practices for spot platforms. But eventually this independent body could enforce rules, supervise them and give customers a place to seek redress."
Recent efforts in the United Kingdom and Japan, as well as other SROs in the U.S., could serve as a model for a crypto SRO, he said. Additionally, states that have regulated cryptos are beginning to cooperate with each other and recognize other regulations in their states, Quintenz said.
Compared to the slow pace of establishing federal regulatory oversight of spot sales of cryptos, and crypto exchanges, the private membership aspect of an SRO could mean faster oversight, Quintenz said. "Funded by members, an SRO can adapt rules faster than the federal government, and rules are informed by practical expertise," he said. "This is especially beneficial in cases of rapidly-evolving industries like crytpos."
An SRO would be subject to federal rules, but those don't exist in the case of cryptocurrencies, Quintenz said.
Quintenz did appear to be defending the agency's regulation of the bitcoin futures contracts that have been launched in recent months on the Chicago Mercantile Exchange and the CBOE. The contracts to an outsider seemed to pop up and were approved in rapid succession, but Quintenz disputed that.
A contract can only get CFTC approval with a significant transparent price history, which bitcoin had, Quintenz said. Additionally, the margins that have been established for those two contracts are 47% of the price of the contract in the case of the CME, and 44% for the CBOE. "That is ten times more than the initial margin requirements over something like a corn contract," he said.
Margin erosion is a measure of when the initial margin is eroded by up to 50%, Quintenz said. In the last two months, the bitcoin contracts have seen that happen only once. But it's happened 11 times with the widely-accepted light sweet crude contract, he noted.