Company: DEFI
Filing Date: 2025-03-27
Form Type: 424B3
Source: 0001999371-25-003249
Chunk: 228

Company: Tidal Commodities Trust I
Filing Date: 2025-03-27
Form: 424B3
Chunk 228
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. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. As a result, trading activity on or reported by these digital asset exchanges is generally significantly less regulated than trading in regulated U.S. securities and commodities markets, and may reflect behavior that would be prohibited in regulated U.S. trading venues

As a means to mitigate these risks, the proposed Fund intends to achieve spot market exposure by trading futures contracts in the CME Market. This is possible through what is called Exchange for Physical transactions, or simply “EFP”. EFPs are a species of the gender “Exchange for Related Positions”, or EFRPs, alongside with Exchange of Futures for Risk (EFR) and Exchange of Option for Option (EOO). EFPs are a type of private agreement between two parties to trade a futures position for the underlying asset. In the context of the Fund, these transactions will be used to purchase and sell spot bitcoin by delivering or receiving the equivalent futures position. In an EFP transaction, two parties exchange equivalent but offsetting positions in a Bitcoin futures contract and the underlying physical Bitcoin. One party is the buyer of futures and the seller of the physical Bitcoin, and the other party takes the opposite position (seller of futures and buyer of physical). The EFP is a privately-negotiated transaction between the two parties to the trade, where the consummated transaction must be reported to CME and its conditions and prices are subject to oversight from CME’s Market Regulation. Because both sides of the trade track the same benchmark (Bitcoin), an EFP is market-neutral. As such, the pricing of the EFP is quoted in terms of the basis between the price of the futures contract and the level of the underlying Bitcoin. The EFP transactions, although facilitated by the infrastructure and under the regulatory oversight of the CME, a CFTC-regulated market, are executed off-exchange and may not carry the same regulatory requirements and level of oversight as on-exchange transactions.

These transactions are governed by CME’s Rule No. 538 1and defined as “the simultaneous execution of an Exchange [CME] futures contract and a corresponding physical transaction or a forward contract on a physical transaction.”. Moreover, all parties to an EFP transaction are required to maintain all records relevant to the transaction pursuant to CFTC Regulation 1.35, thus providing the ability for CME and the CFTC to conduct surveillance inquiries and investigations in an efficient and effective manner