Seed SEF Starts Testing of Its Physically Settled BTC Swaps

Seed SEF (Swap Execution Facility) has begun the UAT (User Acceptance Testing) of its physically settled Bitcoin derivatives, as announced by the firm on 13th August 2019. The testing will continue until early August. The company’s UAT environment is now open for clients to commence trading activity on its matching platform, revealed the press release.

In their conversation with The Block, Seed SEF stated that they would be launching the product in the United States once they attain successful outcomes and ongoing regulatory review.

In an official statement, the CEO and Co-Founder of Seed CX, Edward Woodford, expressed their excitement of having started user testing of their physically settled BTC derivatives offering. Elaborating further, Woodford revealed that they are at the last step and closely working with the US CFTC. The company is also hoping to publicly unveil the product within the upcoming three months, added Woodford.

The Co-Founder also disclosed that for the last 18 months, they have been working with the regulator and awaiting a final go-ahead. The final approval will let the exchange’s subsidiary to self-certify their BTC swap product.

What’s interesting about Seed SEF’s Bitcoin swaps is the fact that it will be settled physically as well as margined. That means market participants will be able to sell or buy BTC for physical delivery later on. The firm will utilize margin methodology based on Value-at-Risk to gauge initial margin needs for the offering. It’s worth noting that other crypto derivatives products that are currently in-trade in the United States are either fully collateralized or settled financially.

According to the announcement, Seed SEF wants to list a mixture of monthly and weekly contracts incrementally in such a manner that at any given time, there will be:

  • 4 forthcoming weekly contracts,
  • 3 approaching serial monthly contracts,
  • 2 forthcoming quarterly monthly contracts; handy for trading.

While the weekly contract would expire on Friday per week, monthly and quarter monthly contracts would expire on 3rd Friday of the corresponding month. The firm is targeting institutional clientele, including mining pools and hedge funds, for the product.

The announcement also disclosed that the derivative product of the company would be delivered through its subsidiary Zero Hash. Zero Hash has been serving as the calculation agent, as well as a delivery facility, for several trading venues which includes Seed SEF. The recent reports also divulged that the NY Department of Financial Services had granted Zero Hash with a virtual currency license.

Seed SEF is a division of Chicago-based digital currency exchange Seed CX. The derivatives trading platform had obtained the SEF license by the CFTC (Commodity Futures Trading Commission) back in 2016.

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