No-action postion with respect to Part 43 and 45 reporting, as well as related sections of Parts 38 and 39, for binary options executed on or pursuant to the rules of MIAXdx and cleared through MIAXdx.

Summary: No-action postion with respect to Part 43 and 45 reporting, as well as related sections of Parts 38 and 39, for binary options executed on or pursuant to the rules of MIAXdx and cleared through MIAXdx.

CFTC LETTER NO. 24-12 NO-ACTION SEPTEMBER 03, 2024

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Division of Market Oversight

Division of Clearing and Risk

Re:

No-Action Position with Respect to Commission Regulations 38.8(b), 38.10, 38.951

(in Part), 39.20(b)(2), and Parts 43 and 45, for MIAXdx Contracts

Introduction

The Division of Market Oversight (“DMO”) and the Division of Clearing and Risk

(“DCR” and, together with DMO, the “Divisions”) of the Commodity Futures Trading

Commission (“CFTC” or “Commission”) are issuing this letter in response to a request from

LedgerX LLC d/b/a MIAX Derivatives Exchange LLC (“MIAXdx”). MIAXdx requested a no-

action position (the “Request”)1 from the swap data reporting and recordkeeping requirements of

sections 38.8(b), 38.10, 38.951 (in part), 39.20(b)(2) along with Parts 43 and 45 of the

Commission’s regulations (collectively, the “Relevant Regulations”). MIAXdx requests a no-

action position with respect to contracts with the features described in this letter traded and

cleared pursuant to MIAXdx’s rules. MIAXdx is registered as a designated contract market

(“DCM”) and a derivatives clearing organization (“DCO”).2

Background

MIAXdx was designated as a DCM on June 24, 2019.3 MIAXdx was registered as a

DCO for the clearing of “fully collateralized digital currency swaps” on July 24, 2017.4 On

September 2, 2020, the Commission issued an Amended Order of Registration allowing

MIAXdx to clear “fully collateralized futures, options on futures, and swaps.”5 MIAXdx stated

in the Request that it will seek to list for trading “binary options on the outcomes of various

1 Request for Relief from Certain Swap Data Reporting and Recordkeeping Requirements (July 11, 2024) (the

“Request”)

On

September 2, 2020, the Commission issued an Amended Order of Registration allowing

MIAXdx to clear “fully collateralized futures, options on futures, and swaps.”5 MIAXdx stated

in the Request that it will seek to list for trading “binary options on the outcomes of various

1 Request for Relief from Certain Swap Data Reporting and Recordkeeping Requirements (July 11, 2024) (the

“Request”).

2 MIAXdx is also registered as a swap execution facility (“SEF”), although it is not requesting relief in connection

with the SEF at this time. See Request at 2 n.3.

3 In the Matter of the Application of LedgerX LLC for Designation as a Contract Market, Order of Designation

(June 24, 2019), available at

https://www.cftc.gov/sites/default/files/filings/documents/2019/orgledgerxdcmorder190624.pdf.

4 In the Matter of the Application of LedgerX, LLC For Registration as a Derivatives Clearing Organization, Order

of Registration (July 24, 2017), available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/ledgerxdcoregorder72417.pdf.

5 In the Matter of the Application of LedgerX, LLC For Registration as a Derivatives Clearing Organization,

Amended Order of Registration (Sept. 2, 2020), available at

https://www.cftc.gov/media/4556/ledgerxllcamendeddcoorder9-2-2020/download.

CFTC Logo

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

www.cftc.gov

Matter of the Application of LedgerX, LLC For Registration as a Derivatives Clearing Organization,

Amended Order of Registration (Sept. 2, 2020), available at

https://www.cftc.gov/media/4556/ledgerxllcamendeddcoorder9-2-2020/download.

CFTC Logo

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5000

www.cftc.gov

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economic or commercial events” (the “MIAXdx Contracts”).6 MIAXdx Contracts are binary

options that “settle at expiration by the payment of an absolute amount to the holder of one side

of the option and no payment to the counterparty, depending on the occurrence or non-

occurrence of the event that is the subject of the contract.”7

In the Request, MIAXdx represented that “MIAXdx Contracts are swaps within the

meaning of the [Commodity Exchange Act (‘CEA’)]” because “Section 1a(47) of the CEA

expressly defines ‘swaps’ to include options as well as any contract that provides for any

purchase, sale, payment, or delivery that is dependent on the occurrence, non-occurrence, or the

extent of the occurrence of an event or contingency associated with a potential financial,

economic, or commercial consequence.”8

As options, binary options fall within the Commission’s plenary options authority under

Commodity Exchange Act (“CEA”) section 4c(b).9 CEA section 4c(b), in relevant part,

prohibits any person from offering, entering into, or confirming the execution of a transaction

involving any commodity regulated under the CEA that “is of the character of, or is commonly

known to the trade as, an ‘option’ . . .” contrary to any Commission rule prohibiting the

transaction or allowing it pursuant to specified terms and conditions. When promulgating

Commission regulation 32.2, the Commission stated that “the swap definition . . . includes

options . .

n of a transaction

involving any commodity regulated under the CEA that “is of the character of, or is commonly

known to the trade as, an ‘option’ . . .” contrary to any Commission rule prohibiting the

transaction or allowing it pursuant to specified terms and conditions. When promulgating

Commission regulation 32.2, the Commission stated that “the swap definition . . . includes

options . . . (whether or not traded on a DCM).”10 Commission regulation 32.2 states, in relevant

part, that commodity option transactions must be conducted in compliance with the CEA and the

Commission’s regulations related to swaps.11

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)12

amended the CEA by adding a definition of “swap.”13 The Dodd-Frank Act required the

Commission and the Securities and Exchange Commission to further define jointly the term

“swap.” In jointly adopting such further definition, the Commissions stated that “the statutory

swap definition explicitly provides that commodity options are swaps[.]”14

Pursuant to the Dodd-Frank Act, the Commission promulgated various regulations

applicable to swaps, including the Relevant Regulations. The Relevant Regulations apply swap

reporting and recordkeeping obligations to DCMs, DCOs, and other market participants. In

particular, Parts 43 and 45 require, respectively, real-time reporting of swap transaction and

pricing data to swap data repositories (“SDRs”) for purposes of public dissemination and

6 Request at 2. MIAX stated that it initially will “seek[] to list cash-settled binary options on cryptocurrencies,” but

“expects to offer other types of binary options in the future.” Request at 2 n.4.

7 Id. at 2.

8 Id.; see also 7 U.S.C. § 1(a)(47)(A)(i)-(ii).

9 7 U.S.C. § 6c(b).

10 Commodity Options, 77 Fed. Reg. 25320, 25321 n.6 (Apr. 27, 2012).

11 17 C.F.R. § 32.2.

12 Public Law 111–203, 124 Stat. 1376 (2010).

13 7 U.S.C. § 1a(47)

l “seek[] to list cash-settled binary options on cryptocurrencies,” but

“expects to offer other types of binary options in the future.” Request at 2 n.4.

7 Id. at 2.

8 Id.; see also 7 U.S.C. § 1(a)(47)(A)(i)-(ii).

9 7 U.S.C. § 6c(b).

10 Commodity Options, 77 Fed. Reg. 25320, 25321 n.6 (Apr. 27, 2012).

11 17 C.F.R. § 32.2.

12 Public Law 111–203, 124 Stat. 1376 (2010).

13 7 U.S.C. § 1a(47).

14 Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement;” Mixed Swaps;

Security-Based Swap Agreement Recordkeeping, 77 Fed. Reg. 48207, 48236 (Aug. 13, 2012). See also In re:

Blockratize, Inc. d/b/a Polymarket.com, CFTC Dkt. No. 22-09, at 2, 7 (Jan. 3, 2022) (“binary options . . . constitute

swaps under the CFTC’s jurisdiction, and therefore can only be offered on a registered exchange in accordance with

the Act and Regulations”).

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reporting of broader swap data to SDRs for the CFTC’s use in fulfilling its surveillance and

market analysis missions.

No-Action Position Requested

MIAXdx requested that the Divisions not recommend the Commission take enforcement

action against MIAXdx or its participants for failure to report MIAXdx Contracts to an SDR or

to fulfill any of the other requirements of the Relevant Regulations. MIAXdx states that it

requests a no-action position that is comparable to the no-action positions concerning reporting

of binary options provided in CFTC Letters Nos

that the Divisions not recommend the Commission take enforcement

action against MIAXdx or its participants for failure to report MIAXdx Contracts to an SDR or

to fulfill any of the other requirements of the Relevant Regulations. MIAXdx states that it

requests a no-action position that is comparable to the no-action positions concerning reporting

of binary options provided in CFTC Letters Nos. 17-31, 17-32, and 21-11.15 MIAXdx makes the

following representations:

• MIAXdx will require that all MIAXdx Contracts be fully collateralized;

• MIAXdx will clear the MIAXdx Contracts solely through MIAXdx;

• MIAXdx will publish on its website the following time and sales data for all MIAXdx

Contracts transactions promptly after execution thereof – trade timestamp, contract,

quantity, and price (in USD);

• MIAXdx shall provide DMO with transactional information as described in Commission

regulation 16.02;

• MIAXdx shall continue to comply with all SDR and recordkeeping requirements of the

CEA and Commission regulations, other than the Relevant Regulations, including

(without limitation) the applicable requirements of Parts 38 and 39 of the CFTC’s

regulations (the records described in this Undertaking 5 are referred to below as the

“Required Records”);

• No Participants shall clear MIAXdx Contracts through any third-party clearing member;

• MIAXdx shall keep the Required Records open to inspection upon request by any

representative of the Commission, the United States Department of Justice, or the

Securities and Exchange Commission, or by any representative of a prudential regulator

as authorized by the Commission. Copies of all such records shall be provided at the

expense of MIAXdx to any representative of the Commission upon request. MIAXdx

shall provide copies of the Required Records either by electronic means, in hard copy, or

both, as requested by the Commission, with the sole exception that copies of records

15 See CFTC Letter No. 17-31 (Jun

udential regulator

as authorized by the Commission. Copies of all such records shall be provided at the

expense of MIAXdx to any representative of the Commission upon request. MIAXdx

shall provide copies of the Required Records either by electronic means, in hard copy, or

both, as requested by the Commission, with the sole exception that copies of records

15 See CFTC Letter No. 17-31 (Jun. 30, 2017), available at https://www.cftc.gov/csl/17-31/download; CFTC Letter

No. 17-32 (Jun. 30, 2017), available at https://www.cftc.gov/csl/17-32/download; CFTC Letter No. 21-11 (Apr. 22,

2021), available at https://www.cftc.gov/csl/21-11/download. The Divisions intend for the position provided in this

letter to match the position provided in No-Action Letters 17-31, 17-32, and 21-11 in all material respects.

Deviations from the position provided in No-Action Letters 17-31, 17-32, and 21-11 in this letter are non-

substantive, and reflect the distinct characteristics of MIAXdx Contracts. Staff issued an additional no-action letter

that is similar to CFTC Letters Nos. 17-31, 17-32, and 21-11 on July 12, 2024. See CFTC Letter No. 24-09 (July

12, 2024), available at https://www.cftc.gov/csl/24-09/download.

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originally created and exclusively maintained in paper form may be provided in hard

copy only.

No-Action Position and Related Conditions

The Divisions have decided to take a no-action position consistent with MIAXdx’s

Request, subject to certain conditions described below, based on MIAXdx’s representations and

statements in support of the Request

/www.cftc.gov/csl/24-09/download.

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originally created and exclusively maintained in paper form may be provided in hard

copy only.

No-Action Position and Related Conditions

The Divisions have decided to take a no-action position consistent with MIAXdx’s

Request, subject to certain conditions described below, based on MIAXdx’s representations and

statements in support of the Request. The Divisions note that this no-action position is similar to

and consistent with previous no-action positions taken with respect to reporting certain binary

options transactions.16 The Divisions will not recommend that the Commission initiate an

enforcement action against MIAXdx or its participants for failure to comply with Commission

regulations 38.8(b), 38.10, 38.951 (only to the extent that regulation 38.951 requires compliance

with Part 45 of the Commission’s regulations), 39.20(b)(2), as well as the applicable provisions

of Parts 43 and 45 of the Commission’s regulations, or the requirements of the relevant CEA

provisions pursuant to which the Relevant Regulations were promulgated, with respect to

MIAXdx Contracts, subject to the following conditions:17

1)

MIAXdx will require all MIAXdx Contracts to be fully collateralized positions, as

defined by Commission regulation 39.2;18

2)

MIAXdx will clear all MIAXdx Contracts through MIAXdx and MIAXdx will

clear all MIAXdx Contracts;

3)

MIAXdx will publish on its website the following information for all MIAXdx

transactions promptly after execution thereof: trade timestamp, contract quantity,

and price;

4)

MIAXdx will provide the Commission with all transactional information as

described in Commission regulation 16.02;

5)

MIAXdx will comply with all reporting and recordkeeping requirements of the

CEA and CFTC regulations applicable to it in its respective capacities as a DCM

and a DCO, other than the Relevant Regulations, including, but not limited to, the

applicable requirements of Parts 38 and 39 of the Commission’s regulations (t

l transactional information as

described in Commission regulation 16.02;

5)

MIAXdx will comply with all reporting and recordkeeping requirements of the

CEA and CFTC regulations applicable to it in its respective capacities as a DCM

and a DCO, other than the Relevant Regulations, including, but not limited to, the

applicable requirements of Parts 38 and 39 of the Commission’s regulations (the

records required to be retained by this condition (5) are referred to below as the

“Required Records”);

16 See CFTC Letters Nos. 17-31, 17-32, 21-11, and 24-09.

17 Some of these conditions regarding the no-action position may constitute a collection of information, as that term

is defined in the Paperwork Reduction Act, 44 U.S.C. §§ 3501 et. seq. The Office of Management and Budget

(“OMB”)—in accordance with 44 U.S.C. § 3507(d) and 5 C.F.R. §§ 1320.8 and 1320.10—has approved collection

3038-0049, entitled “Procedural requirements for requests for interpretative, no-action and exemptive letters,” for

such purposes. This collection would encompass collections made as part of exemptive or no-action position from

the Commission or its staff. The public is not required to respond to a collection of information that does not have a

valid OMB control number.

18 CFTC regulations define “fully collateralized position” as “a contract cleared by a derivatives clearing

organization that requires the derivatives clearing organization to hold, at all times, funds in the form of the required

payment sufficient to cover the maximum possible loss that a party or counterparty could incur upon liquidation or

expiration of the contract.” 17 C.F.R. § 39.2.

18 CFTC regulations define “fully collateralized position” as “a contract cleared by a derivatives clearing

organization that requires the derivatives clearing organization to hold, at all times, funds in the form of the required

payment sufficient to cover the maximum possible loss that a party or counterparty could incur upon liquidation or

expiration of the contract.” 17 C.F.R. § 39.2.

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6)

No MIAXdx participant clears a MIAXdx Contract through a third-party clearing

member; and

7)

MIAXdx keeps the Required Records open to inspection upon request by any

representative of the Commission, the United States Department of Justice, or the

Securities and Exchange Commission, or by any representative of a prudential

regulator as authorized by the Commission. Copies of all such records shall be

provided, at the expense of MIAXdx, as applicable, to any representative of the

Commission upon request. MIAXdx, as applicable, shall provide copies of the

Required Records either by electronic means, in hard copy, or both, as requested

by the Commission, with the sole exception that copies of records originally

created and exclusively maintained in paper form may be provided in hard copy

only.

This letter expresses a staff position only with respect to enforcement of the Relevant

Regulations. This letter does not state any legal conclusion regarding the characteristics or

legality of MIAXdx Contracts or the conduct of any person covered by the no-action position.19

This letter and the no-action position taken herein represent the views of the Divisions only, and

do not necessarily represent the positions or views of the Commission or of any other

Commission division or office. This letter and the no-action position taken herein are not

binding on the Commission.20 Except as explicitly provided in this letter, the no-action position

taken herein does not excuse persons from compliance with any applicable requirements of the

CEA or Commission regulations

not necessarily represent the positions or views of the Commission or of any other

Commission division or office. This letter and the no-action position taken herein are not

binding on the Commission.20 Except as explicitly provided in this letter, the no-action position

taken herein does not excuse persons from compliance with any applicable requirements of the

CEA or Commission regulations. Further, this letter, and the no-action position contained

herein, are based upon the representations made to the Divisions. Any different, changed, or

omitted material facts or circumstances may render this letter void. As with all no-action letters,

the Divisions retain the authority to, in its discretion, further condition, modify, suspend,

terminate or otherwise restrict the terms of the no-action position provided herein.

If you have any questions concerning this letter, please contact Chase Lindsey, Assistant

Chief Counsel, Division of Market Oversight, at (202) 740-4833 or clindsey@cftc.gov; Paul

Chaffin, Assistant Chief Counsel, Division of Market Oversight, at (202) 418-5185 or

pchaffin@cftc.gov; Owen Kopon, Associate Chief Counsel, Division of Market Oversight, at

(202) 418-5360 or okopon@cftc.gov; or Gavin Young, Special Counsel, Division of Clearing

and Risk, at (202) 418- 5976 or gyoung@cftc.gov.

19 For the avoidance of doubt, this letter is not intended to address whether any of the MIAXdx Contracts are

consistent with any statutory or regulatory requirement, including with respect to the requirements of CEA section

5c(c)(5)(C) or Commission regulation 40.11. 17 C.F.R. § 40.11.

20 See 17 C.F.R. § 140.99(a)(2) (“A no-action letter binds only the issuing Division… and not the Commission or

other Commission staff.”).

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Sincerely,

____________________

________________________

Vincent McGonagle

Director

Division of Market Oversight

Clark Hutchison

Director

Division of Clearing and Risk