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Swaps pioneer’s crypto venture takes 2 big steps forward

A cryptocurrency startup backed by a credit-default swaps pioneer just took two big steps toward bringing new derivatives contracts to ether and bitcoin.

TrueDigital, an exchange created by Sunil Hirani, has partnered with ConsenSys to create a reference rate for ether, the companies said in a statement Monday. Such benchmarks are a crucial step because they supply the price reference traders use to calculate the value of derivatives, such as the ones TrueDigital wants to introduce for ether, the second-biggest cryptocurrency.

TrueDigital also said it's seeking U.S. Commodity Futures Trading Commission permission to offer non-deliverable forwards on bitcoin.

There are already derivatives for cryptocurrencies, probably most famously the futures that Cboe Global Markets and CME Group each launched in December. But Mr. Hirani's entrance is significant because he helped found Creditex Group, a major broker of credit-default swaps that Intercontinental Exchange bought for more than half a billion dollars a decade ago. He's chief executive officer of TrueEX Group LLC, a swaps trading platform.

The trading infrastructure for bitcoin, ether and other digital currencies is in its infancy and markets have been plagued with problems: hacks, funds being stolen and systems breaking down when trading becomes heavy. With that in mind, Mr. Hirani said in an interview that he's focused on offering institutional clients access to over-the-counter digital products because that's how mature markets like energy, commodities and currencies developed.

"You can't come out and say we're going to do everything on day one, you have to start somewhere," he said. "We want to be measured here."

Like the Cboe and CME bitcoin futures contracts, the TrueDigital bitcoin non-deliverable forwards will be cash-settled. Some market users are asking for a futures contract that delivers actual bitcoin if held to expiration. Mr. Hirani wouldn't say whether that's the plan for TrueDigital, but added, "There seems to be a lot of demand from end-users and market-makers for a physically delivered contract."

The ether price reference rate will be created by a group of six to 12 market-making firms, Mr. Hirani said. In contrast, both Cboe and CME rely on exchange-derived pricing for their bitcoin futures.

ED&F Man Holdings plans to offer its customers prime brokerage services for the TrueDigital contracts, said Brooks Dudley, vice president of risk at the firm. "NDFs on digital assets are the logical next step for institutional investors who are seeking exposure to bitcoin and other digital currencies," Mr. Dudley said in an emailed statement.