Notice2026-19408
Self-Regulatory Organizations; Bitnomial Exchange, LLC; Notice of a Filing of a Proposed Rule Change Relating to Security Futures Product Listing Standards, Customer Margin and Related Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 23, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 183 (Wednesday, September 23, 2026)</title>
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[Federal Register Volume 91, Number 183 (Wednesday, September 23, 2026)]
[Notices]
[Pages 60438-60448]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19408]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106421; File No. SR-BTNL-2026-001]
Self-Regulatory Organizations; Bitnomial Exchange, LLC; Notice of
a Filing of a Proposed Rule Change Relating to Security Futures Product
Listing Standards, Customer Margin and Related Rules
September 18, 2026.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(the ``Act'') and Rule 19b-7 thereunder,\1\ notice is hereby given that
on September 18, 2026, Bitnomial Exchange, LLC (``Bitnomial'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change described in Items
I, II, and III below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons. The proposed rule
amendments will be filed concurrently with this SEC filing in two
requests for approval by a vote of the Commodity Futures Trading
Commission (``CFTC'') under Regulation 41.24(b), using the procedures
of Regulation 40.5. The Exchange will submit its rules and procedures
as BTNL-2026-105; Bitnomial Clearinghouse, LLC will submit the Chapter
8 amendments to Rules 803 and 806 as BTNL-2026-106.\2\
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\1\ 15 U.S.C. 78s(b)(7); 17 CFR 240.19b-7.
\2\ 7 U.S.C. 7a-2(c); 17 CFR 41.24(b), 41.22 and 40.5.
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I. Self-Regulatory Organization's Description and Text of the Proposed
Rule Change
The Exchange, a CFTC-designated contract market and national
securities exchange notice-registered under Section 6(g) of the Act,\3\
proposes amendments establishing generic listing standards and related
requirements for cash-settled security futures products (``SFPs'') on
individual equity securities. The generic standards govern eligible
underlying securities, permitted contract types, funding, pricing,
settlement and customer margin. The proposal includes the funding and
settlement procedures in Exhibit 4, Attachment 4-B.
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\3\ 15 U.S.C. 78f(g).
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The amendments reproduced in Exhibit 4 cover the following
provisions:
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Rule Proposed change
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101--Definitions.................. Adds BD, SEA and SEC definitions;
uses Contract termination in the
settlement-price definitions.
303--Participant admission Adds required broker-dealer
requirements. registration and Exchange Act
statutory-disqualification
screening.
402--Business conduct provisions.. Adds an issuer-officer/director
trading prohibition and a
prohibition on trading while
possessing material nonpublic
information about the issuer or
underlying security.
405--Position Limits.............. Requires SFP limits or
accountability under CFTC
Regulation 41.25(b)(3), applying
each trading date to perpetual
security futures contracts.
501--Market operations provisions. Makes SFP market hours, trading
halts and resumptions subject to
Rule 515.
502--Contracts Offered............ Authorizes cash-settled SFPs subject
to Rule 515; provides for perpetual
contracts without scheduled
expiration and termination of
trading with final settlement.
509--Settlement Prices............ Amends general price definitions and
settlement provisions; makes SFP
final settlement subject to Rule
515.4 and perpetual SFP funding and
daily settlement subject to Rule
515.6.
515--Security Futures Products Establishes listing standards,
Offered. corporate-action adjustments, final
settlement, customer notice,
funding and daily-settlement
mechanics, market hours, index
methodology, halts and resumptions,
and standard Contract
Specifications.
607--Notice to the Respondent, the Adds prompt SEC notice of final
CFTC, the SEC, and the Public. disciplinary sanctions to the
extent required.
803--Clearing Membership.......... Adds customer SFP broker-dealer
registration and statutory-
disqualification conditions, with
conforming punctuation.
[[Page 60439]]
806--Responsibilities of Clearing Specifies SFP customer-fund
Members. segregation in Rule 806.1 and
requires collection of customer
margin under the joint SEC/CFTC
rules in Rule 806.21, with
conforming punctuation.
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The affected existing rules have not previously been filed with the
Commission pursuant to Section 19(b) of the Exchange Act.
The customer-margin amendment in Rule 806.21 is included in this
proposed rule change and in the rule text in Exhibit 4.
Exhibit 4 contains the proposed text, with brackets for deletions
and underscoring for additions. The text will be available at <a href="https://bitnomial.com/exchange/">https://bitnomial.com/exchange/</a>, at the Exchange's principal office, and
through the Commission's filing record.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed comments concerning it. The statements may be examined at the
places specified in Item IV below. The Exchange has summarized their
principal points below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
(a) Generic Security-Futures Framework and Intended Perpetual Products
The Exchange is establishing rules for its security-futures
business following its notice registration. The proposal adds security-
futures requirements to the Exchange's existing rules for electronic
trading, clearing, membership, surveillance and discipline. It affects
Participants, Clearing Members, intermediaries serving their customers,
and investors trading the products. The proposal covers cash-settled
security futures on individual equity securities, with standard
Contract Specifications for perpetual futures under Rule 515.10.
Options on security futures and security-based swaps are outside this
filing; this proposal does not request authority to operate a general
securities marketplace.\4\
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\4\ Exchange Act Sections 3(a)(55), (56) and (68), and 6(h)(6),
15 U.S.C. 78c(a)(55), (56), (68) and 78f(h)(6). See also SEC/CFTC,
Joint Request for Comment on Further Implementation of Portfolio
Margining and Cross-Margining of Securities and Derivatives, June
30, 2026, footnote 14 (stating that the Commissions have not
exercised their authority to permit options on security futures).
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The generic listing standards govern the eligibility of underlying
securities and the permitted Contract terms. Rules 502.1 and 502.2
address product-submission routes, and Rule 502.3.6 authorizes cash-
settled security futures products subject to Rule 515. Rules 515.1 and
515.2 establish initial and maintenance listing standards; Rule 515.3
specifies corporate-action adjustments; Rule 515.4 governs termination
and final cash settlement; and Rule 515.5 requires customer notice.
Rule 515.6 incorporates the Securities Perpetual Pricing procedures
directly into the Exchange Rules and states the principal funding and
daily-settlement mechanics. Rule 515.7 sets market hours, Rule 515.8
describes the underlying index, Rule 515.9 governs halts and
resumptions, and Rule 515.10 sets out standard Contract Specifications,
including unit size, tick size and the position limit. Contract
Specifications must incorporate the pricing procedures as part of the
Contract's Rules. The pricing procedures are included in Exhibit 4,
Attachment 4-B and take precedence over inconsistent general daily-
settlement provisions of Rule 509. Final settlement remains subject to
Rule 515.4. Each Contract must comply with the proposed rules and the
applicable standards for its underlying security.
Once the generic standards are effective, the Exchange will submit
individual products to the CFTC for approval under Regulation 41.23(b),
using the procedures of Regulation 40.5. Each product submission must
include the applicable security-futures certifications under Regulation
41.22 and satisfy the conditions for trading in Regulation 41.25.\5\ A
separate SEC proposed-rule-change filing would not be required solely
to list an individual product if its underlying security, contract
type, funding methodology, pricing, settlement and other terms conform
to the effective generic standards and the listing involves no
additional rule change requiring an SEC filing. The Exchange will
assess any product or rule change outside the generic standards for
additional SEC filing requirements. Applicable product certifications,
reporting and other regulatory obligations continue to apply.
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\5\ 7 U.S.C. 7a-2(c); 17 CFR 41.22, 41.23(b), 41.25 and 40.5.
Product approval does not dispense with applicable SFP
certifications or pre-trading requirements.
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The Exchange and Clearinghouse will file separate requests for
approval by a vote of the CFTC under Regulation 41.24(b), using
Regulation 40.5 procedures, concurrently with this SEC filing. The
Exchange's request, BTNL-2026-105, covers the listing, trading and
related rules and procedures, including the 15.25% SFP customer-margin
floor implemented in the Exchange's procedures. The Clearinghouse's
request, BTNL-2026-106, covers the Chapter 8 amendments to Rules 803
and 806, including the obligation to collect customer margin under the
joint SEC/CFTC rules. For its initial single-stock perpetual futures,
the Exchange intends to use separate Regulation 41.23(b) product-
approval applications, beginning with BTNL-2026-107. The product
applications will address individual contract terms and supporting
analysis and are outside this generic-rule filing. The rules governing
perpetual funding, position limits, continued listing and settlement
remain part of this filing.
The amendments operate alongside existing rules. Rules 303 and 803
add eligibility requirements for Participants and Clearing Members.
Rules 402, 405 and 501 add securities-specific protections to trading
controls. Rules 502, 509 and 515 govern contract listing, settlement
and other SFP requirements. Rule 607 extends disciplinary reporting to
the SEC, and Rule 806 addresses customer accounts and collection of
customer margin. The conflict safeguards discussed in subsection (g)
also apply to the Exchange's SFP business.
(b) Underlying Securities and Listing Standards
Section 6(h)(3) of the Act and Section 2(a)(1)(D) of the Commodity
Exchange Act (``CEA'') establish the applicable SFP listing
requirements.\6\ Rule 515.1 establishes initial eligibility, limited to
issued and outstanding common stock or qualifying American Depositary
Receipts (``ADRs'') registered under Section 12 of the Act, with a
compliant issuer and an underlying listed on a national securities
exchange and
[[Page 60440]]
reported as a national market system security.\7\
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\6\ 15 U.S.C. 78f(h)(3); 7 U.S.C. 2(a)(1)(D).
\7\ 15 U.S.C. 78l.
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The proposed initial quantitative tests require at least seven
million publicly held shares, at least 2,000 holders, estimated
deliverable supply exceeding 20 million shares, market capitalization
of at least $100 billion, and average daily transaction value of at
least $450 million over the prior six months (or at least $1 billion
over the prior month for a security with a shorter listing history).
The underlying must close at or above $3 for the five consecutive
business days preceding listing. ADRs must meet one of the specified
surveillance-sharing or trading-volume tests or have joint SEC/CFTC
authorization. When-issued and otherwise contingent securities are
excluded.
The maintenance tests include continued Section 12 registration, at
least 6.3 million publicly held shares and 1,600 holders, average daily
transaction value of at least $200 million in the prior quarter (with
the specified $1 billion shorter-history test), deliverable supply
exceeding 20 million shares, capitalization of at least $50 billion,
and a requirement that the underlying has not closed below $3 per share
for five consecutive Trading Days. Compliance with the maintenance
standards is required on a continuing basis. Rule 515.2 permits the
Exchange to prohibit opening transactions following a failure and to
terminate trading in the affected Contract under Rule 515.4. Rule 515.5
requires customer notification when the Exchange announces that an
underlying no longer satisfies maintenance standards.
(c) Position Limits
Rule 405.5 requires the Exchange to establish SFP position limits
or accountability levels under CFTC Regulation 41.25(b)(3), publish
them in Contract Specifications, and apply them at least during the
last three trading days of an expiring contract month or, for a
perpetually settled security futures contract, each trading date.\8\ It
also addresses positions exceeding limits solely because of a Rule
515.3 adjustment.
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\8\ 17 CFR 41.25(b)(3).
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Rule 515.10.1 specifies a standard position limit of 200,000
contracts for the proposed single-stock perpetual futures, as reflected
in the Contract Specifications and applied each trading date under Rule
405.5. At 100 shares per contract, this represents 20,000,000 shares.
The limit must satisfy the applicable deliverable-supply requirements
and be no less restrictive than comparable options limits. Any proposed
increase would be evaluated under the applicable manipulation and
listing standards and submitted through the applicable rule-amendment
process.
(d) Perpetual Funding and Settlement
The proposed SFP trading schedule is 24/5. Rule 515.7 sets the
weekly session from 19:00 Central Prevailing Time (CPT) on Sunday
through 17:00 CPT on Friday, in place of Rule 501's default hours,
subject to National Stock Exchange holidays and maintenance windows
published on the Exchange's website and the trading halts described
below. Trading may occur outside the underlying security's primary
listing market's regular session.
Rule 515.10.1 states the standard Contract terms directly in the
Rulebook. One Contract represents 100 shares, and the minimum trading
unit is one ten-thousandth of a Contract, equivalent to 0.01 share.
Prices are quoted in U.S. dollars per share. The minimum tick is $0.01
per share, equal to $1.00 per full Contract or $0.0001 per minimum
trading unit. The template also specifies the 200,000-contract position
limit and 25-contract reportable position level.
Rule 515.6 incorporates the Securities Perpetual Pricing procedures
into the Exchange Rules and requires their incorporation into Contract
Specifications. The rule explains the index input, funding schedule,
premium measurement, rate calculation, payment direction, daily-
settlement calculation, closing valuations and unavailable-input
treatment. The detailed pricing procedures, included in Exhibit 4,
Attachment 4-B, take precedence over inconsistent general daily-
settlement provisions of Rule 509; final settlement on termination
remains governed by Rule 515.4.
Funding calculation and payments. Funding occurs at 03:00, 11:00
and 19:00 CPT each calendar day, including weekends and holidays when
trading is closed. During open trading, the Exchange records a Premium
sample every 15 seconds, whether or not a trade occurs. Each sample
compares bid-side and ask-side Contract Impact Prices with the
underlying Index Price. Each impact price uses available depth from the
best price outward, capped at USD 50,000 notional on that side. The
final included price level may be partial, and available nonzero depth
below the cap is used.
The weighted average Premium gives each included sample its
original chronological weight within the Funding Interval. Closed,
halted and maintenance periods contribute neither samples nor weights.
An open-market sample with an unavailable eligible Index Price or an
empty side of the Contract order book is assigned a zero Premium and
retains its full weight. The denominator is the sum of the included
sample weights; it equals 1,844,160 only when all 1,920 scheduled
periods in an eight-hour interval contain samples. If no sample in the
entire interval has an available Index Price and determinable impact
prices on both sides, the last calculated Funding Rate carries forward,
even if zero-valued samples were recorded; if no rate has yet been
calculated, the rate is zero.
When a new rate can be calculated, the Funding Rate equals the
weighted average Premium plus an adjustment equal to the fixed 0%
interest component minus that average, with the adjustment constrained
to -0.001% through 0.001%. An average Premium within 0.001% of zero
therefore produces a zero Funding Rate. Outside that range, the Funding
Rate equals the excess and retains its sign. The adjustment range does
not cap the total Funding Rate.
A positive Funding Rate requires longs to pay shorts; a negative
rate requires shorts to pay longs; and a zero rate produces no payment.
The dollar payment is the absolute Funding Rate, converted to a
decimal, multiplied by the absolute net open position for the Trading
Account immediately before the Funding Time, the 100-share Contract
multiplier and the applicable Settlement Price in dollars per share.
Each payment uses its own Funding Rate and Settlement Price. The
Clearinghouse applies the payments through the next applicable
Variation Margin cycle and sums payments falling within that cycle.
Payments are not settled bilaterally between Members. Later revisions
to the underlying index do not alter a Funding Adjustment. Under Rule
515.6.9, methodology amendments operate prospectively and do not alter
completed intervals.
Daily and closing settlement. Under Rule 515.6.6, the Settlement
Price uses the median, or middle value, of the underlying Index Price,
the Index Price plus the average Contract-to-index basis, and a
Contract-price measure, with tick rounding under Rule 509.5. The
Settlement Period is the two and one-half minutes immediately preceding
the applicable valuation time, comprising ten 15-second sample periods.
The basis measure averages the Contract bid-ask midpoint less the Index
Price over open-trading samples with both quotes and an eligible index
observation. The Contract-price measure uses the volume-weighted
average price (VWAP)
[[Page 60441]]
of trades, or, if there are no eligible trades, the time-weighted bid-
ask midpoint over open-trading portions with both quotes. Quotes
retained while trading is closed, halted or under maintenance are
excluded. Observations first available at or after valuation are
excluded.
If the Contract-price measure is unavailable but the Index Price
and average basis are available, settlement uses the Index Price plus
that basis. If the Index Price or average basis is unavailable but the
Contract-price measure is available, settlement uses that measure. If
neither measure is available but the Index Price is available,
settlement uses the Index Price. If no price can be calculated under
that waterfall, the last Settlement Price carries forward. If no
previous Settlement Price exists, the Exchange determines and publishes
an initial price before the first settlement. The Exchange and
Clearinghouse retain their applicable authority to address unavailable,
erroneous or unreliable prices, subject to Rule 515.
Rule 515.6.7 also requires a closing valuation at each scheduled
weekly or holiday close. For Friday's 17:00 CPT close, the Settlement
Period is 16:57:30 to 17:00 CPT. Friday's 19:00 Funding Rate uses
observations from 11:00 to 17:00 CPT; the closed period from 17:00 to
19:00 contributes no samples or weights. An uninterrupted six-hour
observation window contains 1,440 samples with weights totaling
1,037,520. The calculated rate is applied without a six-eighths
adjustment. Friday's 19:00 funding payment uses that rate and the
closing Settlement Price. Both carry forward through subsequent closed-
market Funding Times, including the Sunday 19:00 reopening Funding Time
for a standard weekend. The first scheduled Funding Time using resumed
trading is Monday 03:00, subject to the calculation and fallback
provisions. The closing valuation creates no additional Funding Time;
funding remains a separate payment at each scheduled Funding Time
during the closure.
Underlying index. Rules 515.1 and 515.10 require Contract
Specifications to identify the applicable CF Hybrid Equity Index and
incorporate the CF Hybrid Equity Indices Methodology Guide published by
CF Benchmarks.\9\ Rule 515.8 explains the calculation. CF Benchmarks
selects one source at a time: national-stock-exchange quotations during
covered pre-market, regular and after-hours sessions, and Blue Ocean
ATS quotations during covered overnight sessions. Each second during
scheduled publication, the index is the midpoint of the bid and offer
from the same quotation record, subject to the methodology's
contingency rules. The source and holiday schedule and interruption
treatment appear in the incorporated guide, supplied as Exhibit 4,
Attachment 4-A. The index is used to calculate funding and daily
settlement; final settlement uses the underlying-market reference
required by Rule 515.4. Continued index publication does not override a
trading halt.
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\9\ CF Benchmarks Ltd., CF Hybrid Equity Indices--Methodology
Guide, Sections 4-6, supplied as Exhibit 4, Attachment 4-A and
incorporated through Contract Specifications under Rule 515.1.
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Corporate actions. Rule 515.3.1 requires adjustments preserving, as
nearly as practicable, the economic position of holders immediately
before a Corporate Action. Rule 515.3.2 requires distribution cash
adjustments through the next Variation Margin cycle, from shorts to
longs, equal per Contract to the per-share amount or Exchange-
determined value times the Trading Unit, without duplicate settlement-
price basis adjustments. Ordinary cash dividends produce a cash
adjustment on the ex-dividend date.
Rules 515.3.3-515.3.10 specify the treatment by event. Splits and
reverse splits rescale each open position by the post-action/pre-action
share ratio, retain the standard Trading Unit and divide the variation-
margin settlement-price basis by that ratio. Same-security stock
dividends are treated as splits. Other-security or property
distributions, distributed rights or warrants, spin-offs, special cash
dividends and returns of capital produce cash adjustments for the
amount or value distributed. Share-count changes in rights issues and
qualifying reorganizations may also rescale positions. The Exchange
determines appropriate treatment for split-offs and voluntary exchange
offers, including elections and proration, subject to Rule 515.4.
Ticker changes update Contract identifiers. A merger or similar
transaction that cancels, converts or exchanges the underlying, or
causes it to cease to be outstanding, triggers termination under Rule
515.4.4.
Termination and final settlement. Rule 502.4 permits termination of
a perpetual Contract and requires final settlement of all open
positions, subject to Rule 515.4 for SFPs. Rule 515.4 requires final
cash settlement whenever trading is terminated, including discretionary
termination, and retains the specified delisting, suspension,
registration, maintenance, corporate-transaction, insolvency and fair-
and-orderly-market triggers. The Exchange announces the termination
date and time as far in advance as practicable; all trading ceases at
that time.
The Final Settlement Price must satisfy SEC Rule 6h-1(b) and CFTC
Regulation 41.25(c), including the underlying regular-session opening-
price standard, the permitted alternatives when that price is
unavailable, and the conditions on the Clearinghouse's authority to
determine a final price.\10\ The Securities Perpetual Pricing
procedures explain the permitted alternatives, including settlement
after the next opening becomes available. The final-settlement
requirements apply independently of the median calculations used for
daily settlement and funding.
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\10\ 17 CFR 240.6h-1(a)(1) and (b); 17 CFR 41.25(c).
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The general amendments to Rule 509.1's Floating Market Price
fallback sequence and Rule 509.7's options-pricing model also appear in
Exhibit 4. The Rule 509 amendments do not create an SFP final-
settlement exception to Rule 515.4 or change the priority of the
pricing procedures under Rule 515.6.
(e) Trading, Surveillance and Discipline
Rule 402.17 prohibits trading an SFP by an officer or director of
its underlying issuer within the meaning of Section 16 of the Act, and
by anyone holding material nonpublic information about the issuer or
underlying security.\11\ The trading restriction is imposed by Rule
402.17; Section 16 does not itself impose an identical blanket
prohibition for all transactions.
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\11\ 15 U.S.C. 78p.
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Rules 501.3 and 515.9 require SFP trading halts and coordinated
resumptions, including regulatory halts of the underlying security,
consistent with SEC Rule 6h-1 and CFTC Regulation 41.25(b)(2).\12\ The
Exchange is a member of the Intermarket Surveillance Group (``ISG'').
Rule 209 authorizes the exchange of surveillance reports, Participant
information and investigation assistance with other markets and
regulators. Rules 503, 510 and 511 require registered User IDs,
Participant and Clearing Member front-end audit trails, and customer-
type indicators. Participant and Clearing Member records complement the
Exchange's own order, trade and position records; Rule 512 separately
governs public trading information.
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\12\ 17 CFR 240.6h-1; 17 CFR 41.1 and 41.25(b)(2).
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The SFP surveillance program will compare Contract orders,
executions and positions with activity in the underlying security and
related securities, including listed options, and to issuer news and
corporate actions.
[[Page 60442]]
Surveillance staff will review unusual price or volume movements,
concentrated positions, wash trading, disruptive order activity,
potential insider trading, and trading intended to influence funding,
daily settlement or final settlement. Surveillance staff will also
monitor compliance with the Rule 515 initial and maintenance liquidity
tests and the 200,000-contract position limit. Average daily
transaction value demonstrates activity over the measurement period; it
does not establish uniform liquidity throughout the 24/5 trading week.
Surveillance will cover the scheduled trading week, including
periods outside the underlying market's regular session. The Exchange
will evaluate the availability, depth and integrity of the national-
stock-exchange and Blue Ocean ATS inputs used during each interval. The
Exchange has information-sharing coverage for the relevant underlying,
options and index-source markets, including the information needed to
investigate potential manipulation of index inputs. Item II.A.2(I)-(J)
describes the coordinated-surveillance procedures and audit-trail
records used in such investigations.
The Exchange will work with the SEC to provide data to evaluate the
effectiveness of the product and its potential impact on the
underlying.
Chapter 6 establishes investigation and disciplinary procedures.
Rule 607 adds prompt SEC notice of final disciplinary sanctions to the
extent required by Section 19(d) and Rule 19d-1.\13\ The investigation,
disciplinary and reporting provisions apply equally to affiliated and
unaffiliated firms.
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\13\ 15 U.S.C. 78s(d); 17 CFR 240.19d-1.
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(f) Intermediaries, Customer Accounts and Clearing
Rules 303 and 803 require applicable broker-dealer registration and
add the statutory-disqualification test under Section 3(a)(39) of the
Act.\14\ Rule 806.1 requires SFP customer funds to be held in futures
accounts subject to CEA Section 4d segregation unless the Clearinghouse
permits securities-account treatment under SEC Rule 15c3-3.\15\ The
exception does not waive applicable securities-account requirements.
The associated customer-margin requirement in Rule 806.21 is included
in this filing.
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\14\ 15 U.S.C. 78c(a)(39), 78o(b)(11).
\15\ 7 U.S.C. 6d; 17 CFR 1.20 and 240.15c3-3.
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The contemplated cash-settled products will clear at Bitnomial
Clearinghouse, LLC, a CFTC-registered derivatives clearing organization
(``DCO''). The Exchange intends to rely on the statutory cash-settled
SFP clearing-agency registration exemption under Section 17A(b)(7)(A),
subject to the applicable conditions.\16\
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\16\ 15 U.S.C. 78q-1(b)(7)(A); 15 U.S.C. 78f(h)(3)(E)-(G).
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Customer margin and clearing margin. Proposed Rule 806.21 requires
Clearing Members to collect customer margin for security futures
product positions at levels that comply with the margin rules jointly
adopted by the CFTC and SEC.\17\ Compliance with the Clearinghouse's
risk-model requirement does not, by itself, satisfy the customer-margin
rules. The proposed collection obligation supplements Rule 820's
existing minimum-margin and customer-collection requirements. Rules
305.1.3-305.1.4 require Participants to comply with the Rules and the
applicable rules of the clearinghouse accepting their contracts. Rules
806-808 establish Clearing Member compliance, financial-reporting and
notification obligations; Chapter 6 provides disciplinary procedures.
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\17\ 17 CFR part 41, subpart E; 17 CFR 242.400-242.406.
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Amount and operation. For SFPs, the Exchange will apply a 15.25%
minimum initial and maintenance customer-margin floor to the current
market value of each unhedged long or short position, subject to any
higher applicable requirement and the joint rules' account and position
treatment.\18\ Required customer margin is recalculated as current
market value changes.
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\18\ See 17 CFR 242.403(b)(1) and 17 CFR 41.45(b)(1) for the
joint regulatory margin requirement. The 15.25% figure described
here is the Exchange's customer-margin floor for SFPs.
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The intermediary must determine account equity and required margin
under the joint rules and require deposits when the requirement is not
satisfied. Permissible deposits and valuation are governed by SEC Rule
404 and CFTC Regulation 41.46; account requirements by SEC Rule 402 and
CFTC Regulation 41.44, withdrawals by SEC Rule 405 and CFTC Regulation
41.47, and undermargined accounts by SEC Rule 406 and CFTC Regulation
41.48.\19\ Acceptance of an asset by the Clearinghouse for a different
product or purpose does not establish its eligibility as customer
margin for security futures.
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\19\ 17 CFR 242.402, 242.404-242.406; 17 CFR 41.44, 41.46-41.48.
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Funding Adjustments are applied through Variation Margin in the
next applicable cycle. The resulting credits and debits are reflected
in customer account equity for purposes of the applicable margin
calculations. The Exchange's 15.25% SFP customer-margin floor continues
to apply.
The Clearinghouse and intermediaries may impose applicable higher
requirements consistently with law. The proposal does not authorize new
offsets below the amount that would apply if positions were margined
separately. Such offsets require a compliant rule under SEC Rule
403(b)(2) and CFTC Regulation 41.45(b)(2), effective through the
applicable approval processes.\20\ Use of a portfolio risk model does
not replace the required rule approval.
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\20\ 17 CFR 242.403(b)(2); 17 CFR 41.45(b)(2); 15 U.S.C.
78g(c)(2)(B), 78s(b)(2).
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Affected persons and implementation. The customer-margin proposal
affects Clearing Members carrying security futures for customers and
their customers. Clearing Members remain responsible for administering
customer-margin calculations, eligible collateral, collection and
account restrictions under the joint SEC/CFTC rules. The obligation
applies to affiliated and unaffiliated Clearing Members on the same
basis, with no exception from margin collection, collateral eligibility
or enforcement based on common ownership.
(g) Affiliated Futures Commission Merchant: Independent Oversight,
Conflicts and Competition
Affiliation and the regulatory concern. NinjaTrader Clearing, LLC
(``NinjaTrader'') is an affiliated futures commission merchant
(``FCM'') and Clearing Member under common ultimate ownership with the
Exchange. The affiliation creates potential incentives to favor
NinjaTrader in access, information, commercial treatment or
enforcement, and could disadvantage unaffiliated FCMs and introducing
brokers competing for customer business. The Exchange addresses these
risks through independent regulatory governance, outside FCM oversight,
enforceable common-access rules, information barriers and conflict
procedures.
Independent regulatory oversight. The Chief Compliance Officer/
Chief Regulatory Officer (``CRO'') of the Exchange and Clearinghouse
reports to the Board of Directors. The shared Board currently consists
of five directors, four of whom are independent. Independent directors
therefore hold a majority of the Board responsible for overseeing
compliance, including matters involving an affiliated intermediary.
The Exchange Affiliate Conflict of Interest Policy, Document 210-
100, will be in effect for the Exchange's security
[[Page 60443]]
futures product rules. The policy covers any affiliated FCM and
expressly prohibits the Exchange from serving as the FCM's designated
self-regulatory organization (``DSRO''). It also sets out affiliate
information barriers, equal treatment and access requirements, separate
personnel and governance, and escalation of identified conflicts by the
CRO to the Regulatory Oversight Committee (``ROC'').
Under Rule 205.4, the Exchange's ROC consists entirely of Public
Directors, reports to the Board, supervises the Chief Regulatory
Officer and receives that officer's direct reports. The ROC monitors
the sufficiency, effectiveness and independence of the regulatory
program; oversees trade-practice and market surveillance, examinations
and investigations; reviews regulatory resources and budget allocation
and the hiring, termination and compensation of regulatory personnel;
and reviews regulatory proposals. The ROC oversees both individual
enforcement decisions and the resources needed to administer the
regulatory program.
Four of the five current directors are independent; the proposal
does not establish an 80% independence requirement in the Rulebook.
Rule 202 contains the Public Director qualification process and
requires periodic findings concerning material relationships. The
conflict of interest policy requires at least two-thirds Public
Directors on the Exchange Board and any committee to which the Board
delegates responsibility. Rule 207 requires disclosure and abstention
for specified named-party and financial-interest conflicts, with
determinations and meeting records as provided in that rule. The
director-qualification, disclosure and recusal requirements apply to
decisions concerning NinjaTrader.
NinjaTrader's designated self-regulatory organization. The National
Futures Association (``NFA'') serves as NinjaTrader's designated self-
regulatory organization and primary self-regulatory supervisor of the
FCM. The Exchange does not act as NinjaTrader's DSRO. NFA's independent
FCM oversight exists alongside the Exchange's supervision of
NinjaTrader's compliance with the rules applicable to its Exchange
participation and clearing membership, including SFP rules. The CFTC
remains the federal FCM regulator; applicable SEC authority and
securities obligations also remain in place.
The DSRO designation assigns specified examination and financial-
supervision functions under CFTC Regulation 1.52.\21\ NFA also oversees
NinjaTrader under its applicable member and SFP rules, alongside the
Exchange's oversight of compliance with its own SFP rules. NFA's member
and SFP responsibilities extend beyond its DSRO designation. The
designation does not transfer every securities-law obligation to NFA,
require NFA to examine every Exchange rule annually, or relieve the
Exchange of its duty to supervise its affiliated member. Any allocation
of Exchange Act responsibilities under Rules 17d-1 or 17d-2 would
require a separate arrangement.\22\
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\21\ 17 CFR 1.52, including the scope and retained
responsibilities in paragraph (d).
\22\ 17 CFR 240.17d-1 and 240.17d-2.
------------------------------------------------------------------------
Function Allocation described by this filing
------------------------------------------------------------------------
Independent governance of Exchange Board oversight and the all-Public-
regulation. Director ROC; direct CRO reporting
under Rule 205.4.
NinjaTrader's primary FCM self- NFA as DSRO and NFA member
regulatory supervision. regulator, within the applicable
designation and rules.
Compliance with Exchange and Bitnomial retains oversight,
applicable Clearinghouse rules. including surveillance,
investigation, member information
requirements and discipline.
Applicable SFP securities-law The Exchange and each intermediary
obligations. retain their respective
obligations; the DSRO designation
does not transfer all SFP
supervision to NFA.
------------------------------------------------------------------------
Information barriers. Rule 1012.3 prohibits the affiliate and its
customers from access to Exchange or Clearinghouse material nonpublic
information and limits the affiliate's information access to that
available to other Participants or Clearing Members, as applicable. The
restrictions protect competing firms' trading and customer information
as well as regulatory information. Rule 206 restricts use and
disclosure of information obtained through official duties, and Rule
1001 addresses official trading and misuse of material nonpublic
information.
The conflict of interest policy provides for separate personnel,
offices, governing bodies and information systems and firewalls for the
Exchange and the affiliated FCM, restricted access to nonpublic
regulatory information, and escalation to the CRO and ROC. It limits
the Exchange's access to the affiliate's nonpublic information to the
same basis as for other Clearing Members. The Exchange and its
Clearinghouse share a Board, as Rule 101 expressly provides; the policy
requires separation of the Exchange and Clearinghouse from the
affiliated FCM.
Equal access and treatment. Rule 1012 requires public disclosure of
affiliations, prohibits preferential treatment and inherent advantages,
and subjects affiliates to the same access criteria and Rules as
comparable unaffiliated firms. Rule 205.3 prohibits discriminatory
restrictions or burdens on access among similarly situated Participants
or categories. Chapter 3 and Rule 803 govern participation and clearing
eligibility through common criteria.
The equal-treatment requirements apply to admission, continued
eligibility, trading and information access, and administration and
enforcement of the SFP rules. Neither a customer nor an introducing
broker is required by this proposal to use NinjaTrader. NinjaTrader has
no exclusive right to SFP products or preferred order flow under the
proposal. Competing intermediaries may obtain access through eligible
firms on the same terms. Affiliation provides no exception from
registration, customer protections, position limits, margin obligations
or enforcement.
Under the conflict of interest policy, an affiliated FCM shall not
be the sole Clearing Member. At least two existing unaffiliated
Clearing Members are required before the FCM can become a Clearing
Member, and the Exchange shall notify CFTC staff in a timely manner if
that number falls below two. The unaffiliated-member requirement
applies across the Exchange; it does not limit the affiliate's share of
SFP customer business.
Wave Securities and PCX precedent. The Commission's 2001 order
approving ArcaEx distinguished Wave Securities'
[[Page 60444]]
introducing-broker activity from its outbound order-routing function.
For the introducing-broker activity, the Commission relied on Wave
acting as a user/member on the same terms as other members, the
availability of sponsored access from other members, nondiscrimination
requirements and information barriers separating that activity from PCX
and its facilities. On those facts, the Commission did not consider the
introducing-broker function necessarily an exchange facility. It
cautioned that the analysis would change if Wave became the sole or
predominant source of sponsored access or the information barriers
proved ineffective.\23\
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\23\ Securities Exchange Act Release No. 34-44983 (October 25,
2001), 66 FR 55225, 55233-55235 (November 1, 2001), File No. SR-PCX-
00-25, Sections IV.E.2, IV.E.2.a and IV.E.2.b. Official text:
<a href="https://www.govinfo.gov/content/pkg/FR-2001-11-01/html/01-27417.htm">https://www.govinfo.gov/content/pkg/FR-2001-11-01/html/01-27417.htm</a>.
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The same order identified the conflict between an exchange's
commercial interests and its regulatory responsibilities for an
affiliated broker-dealer, and stated that the exchange must not be the
SRO primarily responsible for examining that broker-dealer. NASD was
the designated examining authority for Wave's functions that were not
PCX facilities. By contrast, the order treated Wave's outbound routing
function as a facility because it was uniquely linked to and endorsed
by ArcaEx, with resulting Exchange oversight and rule-filing
responsibilities.
The later 2005 Archipelago/PCX acquisition order addressed
different ownership and operating arrangements. Its Wave and Arca
Trading inbound-router exceptions were temporary and conditional, and
it stated that an affiliated inbound-router function would be an
exchange facility. Its permanent outbound-router discussion concerned
an exchange facility, optional use and expanded NASD oversight under a
separate regulatory allocation.\24\ The conditions applicable to
routing functions differ from the 2001 analysis of introducing-broker
activity.
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\24\ Securities Exchange Act Release No. 34-52497 (September 22,
2005), 70 FR 56949, 56958-56959 (September 29, 2005), File No. SR-
PCX-2005-90, especially the distinct affiliated outbound- and
inbound-router discussions and footnote 107. Official text: <a href="https://www.govinfo.gov/content/pkg/FR-2005-09-29/html/E5-5314.htm">https://www.govinfo.gov/content/pkg/FR-2005-09-29/html/E5-5314.htm</a>.
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The Exchange addresses conflicts arising from NinjaTrader's
participation as an affiliated FCM and Clearing Member as follows: NFA
supervises the FCM within the scope of its authority; the Board, ROC
and CRO oversee independent Exchange regulation; Rules 1012.2 and
1012.4 require equal treatment and common access; and Rule 1012.3
addresses information advantages. The conflict of interest policy's
separation and unaffiliated-member conditions will apply alongside
these protections for the Exchange's security futures product rules.
The Exchange relies on the independent oversight, equal-treatment
requirements and information barriers described above. The
unaffiliated-member requirement does not, by itself, prevent an
affiliate from becoming a predominant source of SFP access. The orders
do not provide blanket authorization for affiliated FCMs, determine
NinjaTrader's facility status, or make a CFTC DSRO designation
equivalent to the NASD/PCX Exchange Act allocation. The present filing
rests on the Exchange's Rulebook, the conflict of interest policy,
governance and the regulatory responsibilities applicable to its SFP
activity.
2. Statutory Basis
Section 6(b)(1): organization and enforcement capacity.\25\ The CRO
reports directly to a ROC composed entirely of Public Directors. The
Board, currently comprising four independent directors out of five,
oversees compliance. The ROC's review of regulatory resources and the
conflict-disclosure and recusal requirements help protect regulatory
decisions from the affiliate's commercial interests. Participant and
Clearing Member obligations permit the Exchange to obtain information,
and Chapter 6 establishes investigation and enforcement procedures. NFA
supervises the affiliated FCM within the scope of its authority, while
the Exchange retains its own enforcement responsibilities. SFP
supervision must cover the applicable securities-law requirements as
well as financial examinations.
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\25\ 15 U.S.C. 78f(b)(1).
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Section 6(b)(5): investor protection and nondiscrimination.\26\
Initial and continuing eligibility criteria, prohibitions on issuer-
insider trading and trading on material nonpublic information,
coordinated trading halts, settlement and adjustment provisions,
registration screening and customer-account requirements are designed
to protect investors and prevent fraudulent or manipulative conduct.
Rule 1012's equal-treatment and information-access restrictions, Rules
206 and 1001, and Rule 207's conflict controls address the risk that an
affiliated firm benefits from confidential information or favorable
decisions. The equal-treatment and conflict requirements apply to SFP
activity and protect customers, issuers, brokers and dealers from
discriminatory treatment.
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\26\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(8): competition.\27\ Affiliated and unaffiliated
intermediaries must meet the same admission criteria and comply with
the same SFP rules. Access to the market is not reserved for the
Exchange's affiliate, and independent regulatory oversight helps
prevent preferential access to information or favorable treatment in
enforcement. The proposed eligibility, surveillance, registration and
customer-protection requirements are necessary to protect investors and
maintain fair and orderly markets. For the reasons described above and
in Item II.B, the Exchange believes the proposal does not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
Section 6(h)(3): listing standards and conditions for trading.
Section 6(h)(3) establishes the requirements for SFP listing standards
and conditions for trading.\28\ The following discussion addresses each
statutory requirement in order, identifies the relevant proposed or
existing Exchange provisions, and explains how the requirements apply
to the proposed cash-settled security futures on individual securities.
The Exchange will list a Contract only when the applicable statutory
conditions and product-specific requirements have been satisfied.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(h)(3); 7 U.S.C. 2(a)(1)(D).
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(A) Registration of the underlying security. Paragraph (A)
generally requires each underlying security, including each component
of a narrow-based security index, to be registered under Section 12 of
the Act, subject to joint SEC/CFTC modifications authorized by Section
6(h)(4).\29\ Proposed Rule 515.1.1 requires Section 12 registration of
the common stock or qualifying ADR at initial listing. Rule 515.2.1
requires continued registration, and Rule 515.4.2 requires termination
of trading if that registration ceases, with final cash settlement
under Rule 515.4. The present proposal covers individual equity
securities; it does not authorize narrow-based, multi-security index
futures. Use of a single-security reference index for funding and daily
settlement does not dispense with registration of the underlying
security.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(h)(3)(A), (4)(A); 15 U.S.C. 78l.
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(B) Payment and delivery arrangements for physical settlement.
Paragraph (B) requires arrangements with a registered clearing agency
for payment and delivery of the underlying
[[Page 60445]]
securities when an SFP is not cash settled.\30\ Rule 502.3.6 limits the
proposed SFP authorization to cash-settled products, and Rule 515.4
requires final cash settlement of all open positions upon termination.
Accordingly, the proposal does not involve delivery of securities and
does not trigger paragraph (B)'s physical-delivery arrangement
requirement. A physically settled product would fall outside this
proposed authorization and would require the applicable rule changes
and delivery arrangements before listing.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(h)(3)(B).
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(C) Standards no less restrictive than comparable options
standards. Paragraph (C) requires SFP listing standards to be no less
restrictive than comparable options listing standards.\31\ Rule 515.1
establishes initial registration, issuer-compliance, exchange-listing,
public-float, holder, deliverable-supply, capitalization, trading-
value, price and ADR tests. Rule 515.2 provides continuing registration
and quantitative maintenance tests; Rules 515.4 and 515.5 address
termination and customer notice. The proposed $100 billion initial
capitalization and $450 million six-month average daily transaction-
value tests, together with the other criteria described in Item
II.A.1(b), limit eligible underliers to highly capitalized and actively
traded securities.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(h)(3)(C).
---------------------------------------------------------------------------
The statutory comparison applies to the standards as a whole,
including continued eligibility and the consequences of a failure. High
capitalization or trading-value thresholds alone do not establish
compliance with every comparable options requirement. Before listing,
the Exchange will substantiate the comparison for the applicable
underlying, including continued issuer compliance, national-market-
system status, ADR surveillance conditions and the treatment of
maintenance failures. Rule 405.5 separately requires SFP position
limits or accountability under CFTC Regulation 41.25(b)(3), applying
each trading date to perpetual contracts. Rule 515.10.1 specifies a
position limit of 200,000 contracts for the proposed single-stock
perpetual futures. The position limit must satisfy the applicable
deliverable-supply and options-comparability requirements.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 41.25(b)(3).
---------------------------------------------------------------------------
(D) Eligible types of underlying equity securities. Paragraph (D)
generally limits security futures to common stock and other equity
securities jointly determined appropriate by the SEC and CFTC, subject
to their authority under Section 6(h)(4).\33\ Rule 515.1.1 permits
common stock and ADRs representing common stock or ordinary shares.
Rule 515.1.9 imposes the specified ADR surveillance-sharing or trading-
volume conditions or requires joint SEC/CFTC authorization, and Rule
515.1.10 excludes when-issued and other issuance-contingent securities.
An ADR must also be within the equity-security classes permitted by the
Commissions; meeting an Exchange liquidity test alone is not
sufficient.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(h)(3)(D), (4)(A).
---------------------------------------------------------------------------
(E) Linked and coordinated clearing. Paragraph (E) addresses
clearing arrangements that permit an SFP purchased on one market to be
offset on another market trading that product.\34\ The proposed
products will clear at Bitnomial Clearinghouse, LLC. The Exchange
intends to rely on the clearing-agency registration exemption in
Section 17A(b)(7)(A), subject to its conditions, including CFTC
regulation of the clearing agency and the limitation concerning the
activities that would otherwise require SEC registration.\35\ The
registration exemption and the Clearinghouse's DCO registration do not,
by themselves, establish an intermarket clearing link.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(h)(3)(E).
\35\ 15 U.S.C. 78q-1(b)(7)(A); 15 U.S.C. 78f(h)(3)(E)-(G).
---------------------------------------------------------------------------
Section 6(h)(7) separately permits trading without the linked-
clearing standard until the statutory compliance date, which is tied to
the specified relative trading-volume threshold and joint notice by the
Commissions. Section 6(h)(4)(B) also authorizes a joint exemption by
order.\36\ Before trading, the Exchange will document the applicability
of the statutory deferral or any joint exemptive order on which it
relies. If neither applies, the required linked and coordinated
clearing provisions must be in place. The proposal does not provide for
offsetting positions on another market through an established
intermarket link.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(h)(7), (4)(B).
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(F) Broker-dealer suitability obligations. Paragraph (F) requires
transactions to be effected only by a broker or dealer subject to
suitability rules comparable to those of a national securities
association registered under Section 15A(a).\37\ Rules 303 and 803
require the applicable broker-dealer registration and statutory-
disqualification screening. Substantive SFP suitability obligations
arise under FINRA Rule 2370 for FINRA members and under NFA Compliance
Rule 2-30(j) for NFA Members that are not also FINRA members and their
Associates, in each case subject to the rule's scope.\38\ The
suitability rules cover customer information, account approval,
recommendations, the customer's ability to understand and bear the
risks, supervision and recordkeeping. Registration and disqualification
screening are required in addition to compliance with the suitability
rules.
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\37\ 15 U.S.C. 78f(h)(3)(F); 15 U.S.C. 78o-3(a).
\38\ FINRA Rule 2370(b)(16)-(19); NFA Compliance Rule 2-30,
including paragraph (j), which applies to Members that are not also
FINRA members and their Associates, subject to the rule's terms; 17
CFR 41.22(d).
---------------------------------------------------------------------------
The Exchange has SFP intermediary suitability checks in place.
Before permitting an intermediary to conduct SFP activity, the Exchange
verifies its applicable registration, membership and suitability
regime, including the responsibility for account approval and
supervision. The suitability review covers the futures commission
merchants, introducing brokers, commodity trading advisors, commodity
pool operators and associated persons that solicit, accept orders for
or otherwise deal in SFP transactions within CFTC Regulation 41.22(d),
subject to the exceptions permitted by the Exchange Act and its rules.
Rules 303 and 803 govern admission; Rule 401.1 requires continuing
compliance with applicable law, Rule 402.15 requires supervision, and
Chapter 6 establishes enforcement procedures. As explained in Item
II.A.1(g), NFA's DSRO designation alone does not establish the
applicable suitability regime or allocate every SFP sales-practice
obligation to NFA.
(G) Dual trading. Paragraph (G) subjects SFPs to the applicable
prohibitions under CEA Section 4j and its rules or Exchange Act Section
11(a) and its rules, except as otherwise permitted.\39\ The Exchange
operates an electronic trading system, without an open-outcry trading
floor. The floor-broker dual-trading prohibition addresses execution of
customer and specified proprietary or controlled-account trades during
the same trading session.\40\
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\39\ 15 U.S.C. 78f(h)(3)(G); 7 U.S.C. 6j; 15 U.S.C. 78k(a).
\40\ 7 U.S.C. 6j(b); 17 CFR 41.22(e) and 41.27(a)(5), (b). Any
exception must satisfy its applicable conditions under Regulation
41.27.
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CFTC Regulation 41.27(b)(2) separately addresses an electronic
market that gives participants a time or place advantage or permits
them to override the predetermined matching algorithm. The Exchange's
SFP market gives participants no time or place advantage and no ability
to override the
[[Page 60446]]
matching algorithm. Rule 504.7 provides for predetermined,
nondiscretionary central-limit-order-book matching on a price-time-
priority basis, or as otherwise specified in Contract Specifications;
the SFP configuration and participant privileges do not trigger
Regulation 41.27(b)(2). Accordingly, Regulation 41.27(b)(2) does not
require a separate dual-trading prohibition for the proposed SFP
market. The Exchange will reassess this treatment if matching features
or participant privileges change and satisfy any resulting rule-
approval requirement before using a feature that triggers paragraph
(b)(2).
Rules 402.16 and 403 restrict misuse of nonpublic order information
and prearranged or noncompetitive execution. Permitted pre-execution
communications remain subject to Rule 403's customer-consent,
information-use and order-entry conditions, and eligible block trades
remain subject to Rule 505. Rules 503, 510 and 511 provide user, order
and customer-type records for reviewing customer and proprietary
activity. The Exchange will also confirm the applicable treatment under
Exchange Act Section 11(a) and the conditions of any exception relied
upon. Rule 401.1 requires compliance with applicable law, and Chapter 6
establishes enforcement procedures.
(H) Resistance to manipulation. Paragraph (H) requires that SFP
trading not be readily susceptible to manipulation of the product's
price or to causing or being used in manipulation of the underlying
security or related options.\41\ Rule 515's eligibility tests address
concentration and underlying-market liquidity; Rule 405.5 governs
position limits or accountability; and Rules 402.3-402.7 and 403
prohibit manipulative, deceptive and disruptive conduct. Proposed Rule
402.17 adds restrictions on trading by officers and directors of the
underlying issuer and trading on material nonpublic information. Rules
515.1, 515.6 and 515.8 incorporate and describe the reference-index
methodology and perpetual pricing procedures, including closing
valuations and unavailable-input treatment. Rule 515.9 governs trading
halts and resumptions, and Rule 515.10 states the standard Contract
terms. Rule 515.4 makes final cash settlement subject to the regulatory
underlying-opening-price standard.
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\41\ 15 U.S.C. 78f(h)(3)(H).
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The Exchange must also assess manipulation risk for each proposed
product by reviewing funding and settlement inputs, available order-
book depth, liquidity in the source markets, corporate actions and
procedures for market interruptions. The review must cover trading
outside the underlying market's regular session during the 24/5 trading
week. The Exchange will assess the effectiveness of the rules using the
product's design, trading data and surveillance coverage. As stated in
Item II.A.1(e), the Exchange will work with the SEC to provide data to
evaluate the product's effectiveness and potential impact on the
underlying.
(I) Coordinated surveillance. Paragraph (I) requires procedures for
coordinated surveillance among the SFP market, markets trading the
underlying security and markets trading related securities to detect
manipulation and insider trading.\42\ The Exchange shares regulatory
information with participating markets through its ISG membership. Rule
209 authorizes the exchange of surveillance reports and Participant
information, assistance with investigations, and requests to
Participants and Clearing Members for information needed by another
market. Rule 313 authorizes inspection and production of records,
including information concerning activity in related markets. Rule
515.1.9 imposes additional surveillance conditions for ADRs.
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\42\ 15 U.S.C. 78f(h)(3)(I).
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The Exchange has coordinated-surveillance procedures and
information-sharing coverage in place for the relevant underlying and
related securities markets, including options markets and the source
markets contributing to the reference index. The procedures provide for
regulatory information requests and responses to detect manipulation
and insider trading, including potential influence on index inputs
during the 24/5 schedule. The Exchange will maintain the relevant
coverage as products and source markets change. The Regulation 41.22(g)
certification rests on information-sharing coverage of the relevant
markets under the ISG arrangements and Rule 209; ISG membership alone
is not sufficient.
The Exchange's real-time monitoring, automated trade surveillance
and position review will compare SFP orders, trades and positions with
underlying and related-market activity, issuer news and corporate
actions. As described in Item II.A.1(e), surveillance staff will review
manipulation and insider-trading indicators, concentrations, wash
trading, disruptive order patterns, and activity around funding and
settlement observations. Staff will investigate alerts and referrals,
obtain relevant records through the Exchange's rules and information-
sharing arrangements, document the analysis and disposition, and
escalate potential violations for action under Chapter 6. The Chief
Regulatory Officer directs the regulatory response under the oversight
of the all-Public-Director Regulatory Oversight Committee described in
Rule 205.4. Surveillance findings may result in investigation,
corrective action and discipline under Chapter 6.
(J) Audit trails. Paragraph (J) requires audit trails necessary or
appropriate to facilitate the coordinated surveillance required by
paragraph (I).\43\ The Exchange's own order, trade and position records
and the front-end records required of Participants and Clearing Members
serve complementary purposes. Rule 503 requires unique, registered User
IDs and identification of the user entering each order. Rule 510
requires front-end records of order entry, modification, cancellation
and execution, including timestamps that cannot be modified by the
person entering the order, retention for at least five years, and
production in a standard format on request. Rule 511 requires the
correct customer-type indicator. Rule 512's public market-data
requirements are separate from these audit-trail obligations.
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\43\ 15 U.S.C. 78f(h)(3)(J).
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The Exchange maintains order-lifecycle records, retention and
reconstruction controls. The SFP audit-trail program will link
submissions, modifications, cancellations, rejections and executions
with the relevant order identifiers, registered user, trading account,
clearing firm and customer-type information, together with cleared
trades, allocations and positions as applicable. The linked records
allow the Exchange to reconstruct order and trading activity and
compare it with activity in the underlying and related markets. Funding
and settlement review will also use the relevant index observations and
calculation records to examine whether order or trading activity
influenced a payment or settlement price.
Exchange audit-trail records are subject to DCM Core Principle 10
and CFTC Regulations 38.550-38.553, with retention and production under
Regulation 1.31; the separate Rule 510 obligations apply to
Participants and Clearing Members.\44\ Compliance review will compare
participant and Exchange records, check user and account
identification, and investigate gaps or
[[Page 60447]]
discrepancies. Rule 313 authorizes inspection and information requests,
and Chapter 6 provides for remediation and enforcement of applicable
requirements. The Exchange uses the order-lifecycle records and
associated controls to maintain the audit trail required for
coordinated surveillance under Regulation 41.22(h).
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\44\ 7 U.S.C. 7(d)(10); 17 CFR 38.550-38.553 and 1.31; 17 CFR
41.22(g)-(h).
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(K) Coordinated trading halts. Paragraph (K) requires procedures to
coordinate halts with markets trading the underlying and related
securities.\45\ Rule 501.3 makes SFP halts and resumptions subject to
Rule 515.9. Rule 515.9.1 requires a halt while a regulatory halt, as
defined in CFTC Regulation 41.1 and SEC Rule 6h-1, is in effect in any
underlying security.\46\ Rule 515.9.2 also requires a halt whenever the
primary listing exchange halts or pauses the underlying, expressly
including news-pending and other regulatory halts, single-security
pauses, market-wide circuit breakers and corporate-action halts. Under
Rule 515.9.3, SFP trading may resume only after trading in each
affected underlying has resumed on its primary listing exchange, within
Contract Market Hours and subject to any continuing halt. Rule 515.9.4
states the Exchange's procedures for coordination with the primary
listing exchange and other markets trading the underlying and related
securities; Rule 209 authorizes the necessary information sharing. The
halt and resumption requirements apply throughout the published 24/5
trading schedule. Continued index publication does not authorize
trading during a halt; scheduled closures and the pricing procedures'
funding and settlement carry-forwards do not override the halt
requirements.
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\45\ 15 U.S.C. 78f(h)(3)(K).
\46\ 17 CFR 240.6h-1; 17 CFR 41.1 and 41.25(b)(2).
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(L) Margin requirements. Paragraph (L) requires compliance with the
joint margin regulations prescribed under Section 7(c)(2)(B) and
expressly permits an exchange to require higher margin levels when
necessary or appropriate.\47\ Proposed Rule 806.21 requires Clearing
Members to collect customer margin in compliance with the joint SEC/
CFTC rules, supplementing Rule 820's margin-collection requirements.
The Exchange will apply a 15.25% minimum initial and maintenance
customer-margin floor for SFPs, subject to any higher applicable
requirement and the joint rules' account and position treatment. Item
II.A.1(f) explains current-market-value measurement, eligible deposits,
account equity, deficiencies and funding adjustments. The proposal does
not authorize otherwise unapproved offsets or treat a Clearinghouse
risk-model result as a substitute for the customer-margin requirement.
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\47\ 15 U.S.C. 78f(h)(3)(L); 15 U.S.C. 78g(c)(2)(B).
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Section 7(c)(2)(B): customer margin. The Exchange believes the
customer-margin proposal is consistent with Section 7(c)(2)(B) and the
joint security-futures margin rules.\48\ Applying the Exchange's 15.25%
SFP customer-margin floor to current market value, restricting deposits
to eligible assets at permitted values, and requiring collection and
action on deficiencies support financial integrity and protection
against credit exposures. The applicable margin must also satisfy the
statutory comparability requirements for exchange-traded options. The
proposal does not seek approval of a portfolio model or offset
methodology as independently satisfying the comparability requirements.
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\48\ 15 U.S.C. 78g(c)(2)(B).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange permits multiple eligible intermediaries, whether
affiliated or unaffiliated, to offer SFPs. Customers and introducing
brokers are not required to use NinjaTrader or any other affiliate to
access the Exchange's SFP market.
The proposed rules require underlying securities to meet liquidity
and eligibility standards, intermediaries to satisfy applicable
registration, account-control, customer-notice and compliance
requirements, and traders to comply with position limits, trading halts
and market-conduct rules. Such requirements limit the products eligible
for listing and may require firms offering SFPs to incur compliance
costs. The requirements are designed to protect investors, maintain
financial integrity and orderly markets, and reduce the risk of
manipulation. Eligibility and conduct requirements apply equally to
affiliated and unaffiliated firms in comparable circumstances.
The customer-margin obligation and the Exchange's 15.25% SFP
customer-margin floor apply without regard to affiliation. An
affiliated firm receives neither a lower floor nor a special margin
offset under the proposal. Higher margin requirements may be imposed to
reflect risk, consistently with applicable rules, and may not be used
to favor an affiliate.
NinjaTrader's affiliation could create incentives to favor it over
competing FCMs and introducing brokers. As described in Item II.A.1(g),
the Exchange addresses that risk through independent regulatory
oversight, NFA supervision of the affiliated FCM, information barriers,
equal access and prohibitions on preferential treatment. The Exchange
believes that applying the same access, conduct and customer-protection
requirements to comparable intermediaries, together with the safeguards
governing its affiliate, prevents the proposal from imposing any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange is not soliciting public comments on the proposed rule
change and has no written comments to submit. No materials are
submitted under Exhibit 2 with this initial filing.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange's request, BTNL-2026-105, and the Clearinghouse's
Chapter 8 request, BTNL-2026-106, will be filed concurrently with this
SEC filing for approval by a vote of the CFTC under Regulation
41.24(b), using Regulation 40.5 procedures. Copies of the two requests
are included as Exhibit 5, Attachments 5-A and 5-B, respectively. The
Exchange and Clearinghouse expect CFTC approval of each request within
the 45-day review period following receipt of that submission under
Regulation 40.5(c)(1). The proposed rules remain subject to the
applicable CFTC approvals.
Under Section 19(b)(7)(B), the proposed rule change becomes
effective upon CFTC approval.\49\ Trading will begin only after the
applicable approvals for the SFP rules, including customer margin,
separate product approvals, and other launch requirements have been
satisfied.
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\49\ 15 U.S.C. 78s(b)(7)(B).
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At any time within 60 days of CFTC approval, the Commission, after
consultation with the CFTC, may summarily abrogate the proposed rule
change and require refiling under Section 19(b)(1) if it appears that
the change unduly burdens competition or efficiency, conflicts with the
securities laws, or is inconsistent with the public interest and
protection of investors.\50\
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\50\ 15 U.S.C. 78s(b)(7)(C).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,
[[Page 60448]]
including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
File Number SR-BTNL-2026-001 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BTNL-2026-001. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the filing will be available for inspection and copying at
the principal office of the Exchange. Do not include personal
identifiable information in submissions; you should submit only
information that you wish to make available publicly. We may redact in
part or withhold entirely from publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to File Number SR-BTNL-2026-001 and should be submitted on or
before October 14, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
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\51\ 17 CFR 200.30-3(a)(73).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-19408 Filed 9-22-26; 8:45 am]
BILLING CODE 8011-01-P
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