September 23, 2021

Volume XI, Number 266

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CFTC Issues Conditional Relief From Reporting Fully Collateralized Binary Option Data to Swap Data Repositories

On April 22, the Commodity Futures Trading Commission’s Division of Data, Division of Market Oversight and Division of Clearing and Risk (collectively, the Divisions) issued CFTC Letter No. 21-11, which (1) provides no-action relief to KalshiEX LLC (Kalshi), a designated contract market, and LedgerX, LLC (LedgerX), a derivatives clearing organization, from reporting to swap data repositories data for binary option transactions executed on or subject to the rules of Kalshi and cleared by LedgerX; and (2) exempts Kalshi and LedgerX from certain related recordkeeping requirements.

This relief is subject to certain conditions, including, but not limited to, the following:

  1. all binary options covered by the relief being fully collateralized, as the term is defined in CFTC regulations;

  2. Kalshi clearing all binary options through LedgerX and LedgerX clearing all of Kalshi’s binary options;

  3. Kalshi providing the CFTC with all transaction information as required in CFTC Regulation 16.02;

  4. Kalshi and LedgerX each complying with all remaining applicable reporting and recordkeeping requirements;

  5. no Kalshi participant is clearing a product covered by the relief through a third-party clearing member; and

  6. Kalshi and LedgerX continuing to keep records not included in the relief open to inspection upon request by any of several regulators, including the CFTC, and providing copies of such records on the request of such regulators, at the expense of Kalshi or LedgerX, as applicable.

The Divisions noted that this relief is similar to and consistent with prior no-action relief granted for binary options transactions in CFTC Letter Nos. 17-31 and 17-32.

CFTC Letter No. 21-11

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 113
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About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

...

312-902-5372
Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney
Associate

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has...

312.902.5420
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