Proposed Digital Asset Disclosure and Certification

Discussion Draft Prepared by FTX US Derivatives

Proposed Digital Asset Disclosure and Certification
for the purpose of listing digital asset futures, options, or swaps on a CFTC registered exchange

(Spring 2022)

FTX US Derivatives (“FUSD”) anticipates a continuing expansion of the scope of digital assets that may underlie futures, options, or swaps contracts listed for trading on derivatives venues registered with the U.S. Commodity Futures Trading Commission (the “CFTC”). As this growth accelerates, trading venues seeking to list these products must continue to meet their core principle obligations with respect to new products. In that context, FUSD proposes in this paper a digital asset certification process through which a designated contract market (each, a “DCM”) and/or swap execution facility (each, a “SEF”) may certify to the CFTC that a given digital asset is a suitable underlier for a product to be listed for trading on a DCM or SEF (and, if applicable, clearing on a CFTC registered derivatives clearing organization).

Overview

• FUSD believes that thoughtful transparency surrounding the key economic, technical, and functional characteristics of a given digital asset and related network is critical to ensuring that market participants appropriately understand the products they are trading.
• A practical approach to creating and delivering this transparency is achievable.  
• Under the proposal outlined below, a DCM or SEF seeking to list a digital product would first submit to the CFTC a digital asset certification with respect to a given digital asset underlying a new listed product, and that certification must:
• Include, at a minimum, the information outlined in this proposal,
• Be made public by the DCM or SEF listing the product at least 5 days before the product is listed for trading, and
• Be updated and refreshed by the DCM or SEF, from time to time (and no less than annually), for as long as a product related to that digital asset is listed and traded.
• FUSD believes that DCMs and SEFs may begin following this process on a voluntary basis, immediately.
• Ultimately, we believe that the CFTC should use guidance and eventually, after a pilot period, formal rulemaking to compel DCMs and SEFs to follow this process when listing digital asset products.
• This process is proposed as a supplement to and not a replacement of the CFTC’s January 2018 guidance addressing the heightened review of self-certified digital asset derivatives products by CFTC registered exchanges (see: https://www.cftc.gov/sites/default/files/idc/groups/public/%40customerprotection/documents/file/backgrounder_virtualcurrency01.pdf).  

Process Mechanics and Process Timeline

• A DCM or SEF determines to list a new future, option, or swap on a digital asset underlier (whether physically or financially settled).
• In creating the self-certification (CFTC Rule 40.2) or request for approval (CFTC Rule 40.3) filing for the product, the DCM or SEF shall include as an appendix a series of information related to the underlying digital asset, as outlined below (the “Digital Asset Information Appendix” or “Appendix”).
• This information may generally be sourced from the digital asset’s ecosystem user community, and/or via independent research and analysis of the blockchain underlying and ecosystem surrounding the relevant digital asset, including through publicly available materials. Notwithstanding that sourcing, the information in the Appendix shall legally be submitted by / filed by the DCM or SEF, and that entity shall be responsible for ensuring the accuracy and credibility of the content.
• If a DCM or SEF is listing a new product type referencing a digital asset for which the DCM or SEF has previously submitted a Digital Asset Information Appendix, the DCM or SEF may refer instead to the current version of that Appendix rather than submitting a new one.  
• If the filing is a self-certification, the DCM or SEF shall voluntarily elect not to list the product for trading until five (5) business days after the first submission of the Digital Asset Information Appendix and the publication of the same on the DCM’s or SEF’s website. If the filing is a request for approval, the product may not be listed until approved.    

Form of Digital Asset Information Appendix (see below)