CFTC Lets Coinbase Trade Foreign Perpetual Derivatives as Foreign Futures
In a no action letter, the CFTC's Market Participants Division allowed Coinbase Financial Markets to treat perpetual derivative contracts listed on its affiliated foreign exchange ("Deribit") as "foreign futures" under certain conditions.
In the interpretive letter, the CFTC confirmed that Coinbase Financial Markets may categorize certain perpetual-term derivative contracts as foreign futures under CFTC Rule 30.1 ("Definitions"). The CFTC said the interpretation is limited to perpetual derivatives based on the spot price of digital commodities that have deep, active and continuous spot market trading. Under the rules of Deribit's home regulator, the Dubai Virtual Assets Regulatory Authority, perpetual contracts are classified as a subcategory of exchange-traded derivatives (futures) rather than as swaps.
The Division also said it will not recommend enforcement action against Coinbase Financial Markets under CFTC Rule 30.7 ("Treatment of foreign futures"). if the firm posts customer-owned digital commodities and payment stablecoins with its affiliated foreign broker, Coinbase Bermuda Limited, to margin customer positions on Deribit, in circumstances where Coinbase Bermuda has obtained a right of re-use over the assets. The Division also said it will not recommend enforcement action against Coinbase Bermuda for taking title to or invoking a right of re-use over those assets in apparent violation of the Acknowledgment Letter required by Regulation 30.7.
The no-action position is subject to a variety of conditions, including as to compliance with local law. Additionally, Coinbase Financial Markets must give customers a disclosure statement describing the transaction flow, the role of each Coinbase Global affiliate and default-management framework employed with respect to the perpetual futures. The firm must also comply with the conditions in Staff Letter 26-05, which governs how an FCM treats non-securities crypto assets as margin for capital and segregation purposes.