CME Files to Double Monthly Bitcoin Futures Open Position Limit to 10K BTC

The Chicago Mercantile Exchange (CME Group) wants to let bitcoin futures traders hold a greater number of open positions at one time.

CME announced its intention to increase in the so-called spot month position limit for its bitcoin futures contracts in a letter to the U.S. Commodity Futures Trading Commission (CFTC) Thursday.

The limit would jump from 1,000 contracts per spot month to 2,000 for any single investor. Since each contract is for five bitcoin, the change means a trader’s maximum exposure would double from 5,000 bitcoin (worth about $50 million at current prices) to 2,000 contracts (10,000 bitcoin, or $100 million).

To be sure, few traders if any holding that many open positions right now, given that the exchange saw the number of open interest contracts reach an all-time high around 6,100 in July.

But the company sees room for this market to grow, and is seeking to increase these 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 the spokesperson.

If the CFTC does not object to the plan, the move will take effect on Sept. 30 for the October 2019 contract, wrote CME managing director and chief regulatory counsel Christopher Bowen in the letter.

Guardrails

According to the CFTC, position limits are designed to prevent "excessive speculation" in any commodities which underpin a futures product.

The concern is that without these limits, excessive speculation in a particular futures contract might cause the underlying asset’s price to fluctuate suddenly.

"In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low," the CFTC website states.

As such, CME’s move on Thursday can be seen as a sign that the bitcoin market is maturing, as well as a sign that bitcoin futures contracts are better understood than they were previously.

Under the plan, the single month accountability level would remain at 5,000 contracts, meaning CME would continue to scrutinize only those traders whose open positions exceed the threshold.

A good year

CME launched its cash-settled futures contract at the end of 2017, alongside cross-town rival Cboe. However, Cboe announced in March that it would be shutting down its futures market, leaving CME as the sole exchange to offer the product in the U.S.

While CME is currently the only exchange to offer bitcoin futures in the country, the Intercontinental Exchange, through its ICE Futures US wing and Bakkt subsidiary, plans to offer physically-settled futures contracts later this month. A number of other companies are also looking to offer physically settled futures and forwards products.

The exchange has seen “20 successful, uneventful settlements,” the spokesperson said. It currently has a record number of large open interest holders at 56, and now sees an average daily volume of 7,100 contracts overall.

More than 1,200 traders have signed onto the platform since the beginning of 2019.

"This is one more way we’re providing customers, institutional traders and end-users with additional flexibility to trade and hedge bitcoin price risk," the spokesperson said.

UPDATE (Sept. 13, 2019, 00:55 UTC): This article has been updated for clarity.

Tim McCourt, CME managing director of equity products and bitcoin futures image via CoinDesk archives