Tera Group Inc. created a legal framework for Bitcoin swaps, which would let investors trade payments based on how the virtual currency performs against a real one.

The terms for a multimillion dollar swap between two U.S. institutions is planned to hedge Bitcoin volatility over a 25-day period, the Summit, N.J.-based company said in a statement today. Swaps based on Bitcoin are unregulated and the firm is seeking the blessing of the U.S. Commodity Futures Trading Commission so it can offer the trades on its regulated swap-execution facility, the company said.

"We as a company are trying to bring some structure and some protocol to help the Bitcoin community," Leonard Nuara, the president of Tera, said during a phone interview today. "It provides a tool for a natural hedge to get relief from the price changes in Bitcoin."

The regulation of Bitcoin, let alone derivatives linked to it, is an unresolved question in many parts of the world. Even as regulators and investors struggle to grasp Bitcoin's many uses — including investment vehicle, payment-processing system and money-laundering tool — they are now confronted with the additional complexities of an emerging derivatives market.

The International Swaps & Derivatives Association created the master legal document for swap transactions in the 1980s, and it's still in use today for customized trades that can't be backed by clearinghouses. Tera would join others in the quest to create derivatives based on Bitcoin.

George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin's price swings, saw trading on his BTC.sx website grow to more than $35 million by Jan. 21. After the shutdown at Mt. Gox, a Tokyo-based exchange for buying and selling Bitcoins, BTC.sx suspended trading because it had to find another exchange partner for its customers.

At the CFTC, the top U.S. derivatives regulator, lawyers are considering if and how to oversee derivatives linked to Bitcoin and other digital currencies, two people briefed on its work said in February. The agency has been preparing an internal memo that examines the CFTC's authority over digital currencies and how it might exercise those powers to regulate the markets, the people said.

Tera has provided information about its Bitcoin agreement to the CFTC and is in discussions with the regulatory agency, Nuara said in the phone interview. Tera hasn't asked the CFTC to decide on approval by a certain date, he said.

"The infrastructure and regulatory protocols already exist in the conventional OTC swaps markets to support these hedging instruments," Nuara said in a statement today. "Regulatory approval is crucial to the long-term growth of the market utilizing Bitcoin."

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