CME CF BRR and BRTI Oversight Meeting Minutes

  • 2 Aug 2017
  • By CME Group

Agenda for the Oversight Committee meeting for BRR and BRTI to be held on 7th June 2017.

  1. Formalities:
    • Apologies for absence
    • Quorum
    • Conflicts of interest
  2. Update on BRR/BRTI
    • Update on performance
    • Review of Constituent Exchanges (including new applications, changes with existing constituent exchanges)
    • Update on architectural changes
  3. Discussion of hard fork policy (attached)
  4. Discussion of new products
  5. Review of committee structure
  6. Any Other Business

Minutes of the Oversight Committee meeting for BRR and BRTI held via conference call on 7th June 2017.

1. Formalities

Attendance

Name

Role

Attendance

Gavin Lee – CME

Chair

On phone

Payal Lakhani – CME

Member

On phone

Mr Timo Schlaefer – Crypto Facilities Ltd

Member

On phone

Mr Andreas M. Antonopoulos – Independent Consultant

Member

On phone

Mr Michael Moro – Genesis Global Trading

Member

On phone

Mr William Knottenbelt – Imperial College London

Member

On phone

Quorum

  • Quorum met – meeting began at 12:00 London time on 07 June 2017. 

Conflicts of Interest

  • 1 conflict was raised and recorded.
  • Other than the conflicts of interest already registered, no further conflicts were raised. 

2. Update on & Performance of BRR Index

  • No suspicious activity to note for the period 01 March – 07 June.
  • There were no observed problems with computing or distributing the rate.
  • Removal of Bitfinex on 18th April 2017.  Due to suspension of USD withdrawals and later deposits.
  • Removal of Okcoin(HK) on 20th April 2017. Due to suspension of USD withdrawals and deposits.
  • Since the 2 removals the rate has been calculated from 4 remaining exchanges.
  • The rate has been shadow calculated using all 6 exchanges for comparison purposes. There was initial diversion between BRR6 and BRR4 after the removal of the 2 exchanges, as Bitfinex and OKcoin were trading at a much higher price due to withdrawal restrictions. Removing them therefore led to a lower index level. The divergence has now been erased as Bitfinex is now trading at a discount to the others due to the restrictions.
  • The OC agreed that pulling the 2 exchanges from the pool was the correct thing to do.
  • A question was raised asking if we need to start looking at any other eligible exchanges to expand the pool out again, or if the current pool represents the market?
    • Good to have as many exchanges as possible if they are at the required level of quality.
    • Currently, there are not any exchanges that make up the exchange universe, which we should have included, that have not been.
    • There are several smaller exchanges worth watching.
    • The current list of approved CE’s accounts for 80-90% of USD volume.
    • Divergence is less than 2/10 % spread between any pair of top 5 exchanges; even though they are in different regions trading with different banks, clients, etc. etc. It can be thought that, having 2 of these exchanges in the calculation would provide excellent price discovery. There is therefore an argument to say it is better to have fewer exchanges and move exchanges in and out of the calculation as they comply fully.
  • Situation with Bitfinex and Okcoin has improved but not resolved. We await further announcements from them. Timeframe for announcement is unclear.
  • Is there a risk that all exchanges will run into similar problems?
    • In this case, the problem is restricted to Hong Kong banks. The Hong Kong banks in question have a correspondence relationship with Wells Fargo. Wells Fargo now have a different perspective towards correspondence banks, because of the tightening of certain banking regulations in the area and pressure from US treasury. So not a systematic problem, but similar issues could be widespread.
    • There is a risk that an exchange offers a USD book, but is not located in the US. Looking at the CE’s; Bitstamp is located in Luxembourg, GDAX is US, itbit is US, Kraken is US. Bitstamp, Okcoin and Bitfinex therefore require the international transfer for maintaining a book in USD.
  • No new exchanges have approached CF or CME with an application to become a CE, nor were any exchanges suggested for inclusion by a member of the public.

Update on architectural changes

  • Mr Schlaefer gave an update on the upgrade of the CME CF indices calculation infrastructure from V2 to V3.
  • V2 was implemented under a tight time-line, whereas V3 as now been in development for 7 months. V3 uses internal communication and data protocols based on the latest technology developed and used internally by Google (GRPC and ProtoBuf). This brings V3 to a standard in terms of reliability, performance and maintainability that we think is necessary to add and maintain a wide range of products.
  • Specifically, benefits are:
    • code base simplification
    • increased testability and manageability
    • better error resiliency, especially towards invalid data inputs
    • easily extensible for new indices and data types
    • increased security - uses SSL - doesn't rely solely on Amazon private networking
    • less dependent on specific Amazon services
    • no redis dependency
    • minimal use of disk storage
    • cheaper to run, no redis fees
    • improved monitoring
    • removal of overlapping redundancy concepts => increased resiliency
    • improved code sharing/reuse

Currently in V3 Is in testing, and will be promoted to production in July 2017. The transition will be seamless from a calculation and dissemination perspective,


3. Discussion of hard fork policy

An open discussion was had regarding a hard fork policy. The draft policy that was circulated to the OC committee was well received, with a few minor changes suggested. On the whole, there was no objection to the formulation.

One OC member quoted:

  • “not only is this contingency planning, but this is exactly the kind of innovation that is required to play the role of an index in this space. It is innovation that others aren’t doing – and that’s a huge differentiator!” 

4. Discussion of new product offering

An open discussion was had on potential ideas for a roadmap and future offerings. 


5. Review of committee structure

An open discussion was had on whether the composition of the oversight committee was fit for purpose, and whether the market was adequately represented?

The conclusion was that the OC has a good understanding of the technicalities as well as the market and representative of the market. 


6. Any Other Business

None. 


Actions

  • Circulate revised forking policy document for comments
  • The meeting was bought to a close at 13:00 London time.
  • The next oversight meeting will be scheduled for early Sept 2017.

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