In the Matter of TeraExchange L.L.C.

TeraExchange L.L.C. (Tera) (defendant) was a provisionally registered swap-execution facility (SEF) that had established a mechanism to trade a nondeliverable forward contract based on the relative value of the United States dollar and Bitcoin, known as a Bitcoin swap. On October 7, 2014, an employee of Tera coordinated between two separate firms to arrange for the firms to execute a riskless test trade of the Bitcoin swap. These two firms were the only firms that had completed the onboarding process necessary to trade on the Tera SEF. On October 8, Tera facilitated a transaction in which the two firms each sold and bought from each other a Bitcoin swap with a notional value of $500,000. Tera did not charge any transaction fee or commission to either party, therefore resulting in a transaction in which both firms bore no risk and incurred no costs. That same day, the National Futures Association, a self-regulatory organization that oversaw Tera, and the Commodity Futures Trading Commission (CFTC) (plaintiff) both contacted Tera regarding the transaction. Tera explained that the transaction was intended to “test the pipes.” The following day, on October 9, Tera issued a press release stating that its SEF facilitated the first-ever Bitcoin derivative transaction. The CFTC found that Tera’s actions constituted a violation of § 5h(f)(2) of the Commodity Exchange Act (CEA) and CFTC regulation 37.203. Instead of proceeding to adversarial litigation, Tera entered into an offer of settlement with the CFTC.