November 1, 2023

Christopher J. Kirkpatrick

Secretary

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

Re: Cboe Clear Digital, LLC Rule Certification

Submission Number CCD-2023-07C

Dear Mr. Kirkpatrick:

Cboe Clear Digital, LLC (“CCD” or “Clearinghouse”), a registered derivatives clearing 

organization (“DCO”) under the Commodity Exchange Act, as amended (“CEA” or the “Act”), 

hereby submits, pursuant to §40.6(a) of the regulations promulgated by the Commodity Futures 

Trading Commission (“CFTC” or “Commission”) the CCD Risk Management Procedures in 

connection with clearing margined futures contracts on bitcoin and ether (“Products”).

1 As part of 

the Commission’s review of CCD’s application to amend its Derivatives Clearing Organization 

(“DCO”) order of registration to clear margin future products,2the Commission reviewed a draft 

of CCD’s Risk Management Procedures and Credit Risk Management Framework. Since the 

Commission’s approval of CCD’s amended DCO order of registration, CCD has absorbed its 

Credit Risk Management Framework into its Risk Management Procedures; however, the 

combined content is the same that the Commission reviewed and CCD has since only added 

additional details or updates to enhance procedures.

3 The CCD Risk Management Procedures is 

set forth in a segregated confidential Exhibit A to this submission. 

The proposed rule change to adopt the CCD Risk Management Procedures (or, “Procedures”) will 

become effective on November 16, 2023.

1 CCD anticipates that it will begin clearing the margined Products on behalf of its affiliated Designated 

Contract Market (“DCM”), Cboe Digital Exchange, LLC, by Q1 2024. 

2 CCD’s amended DCO order of registration was approved by the Commission on June 5, 2023.

3 CCD has added: additional details in the Onboarding section regarding how pre-trade limits and posttrade thresholds will be initially set for newly approved FCM Clearing Members; an additional Pre-Trade 

Exposure Limits section; an additional FCM Clearing Member Margin Profiles section; an additional 

Financial Review Metrics section; additional detail to the Margin Rate and Initial Margin Controls section 

(formerly titled the Risk Parameter and Initial Margin Requirement Review and Approval section); 

additional detail to the Ongoing Monitoring section (formerly titled the Intraday Monitoring section); and 

updates to the Periodic Reviews section to include details around periodic reviews of pre-trade limits and 

post-trade thresholds as well as FCM risk management policy and procedure reviews.
Procedures Overview

The Procedures set forth the procedures to implement various CCD policies,

4

and applicable to 

Clearing Members applying or approved to clear the Products (also known as “FCM Clearing 

Members”) as well as Non-Clearing Exchange Members (including, Non-Clearing Futures 

Commission Merchant (“FCM”) Exchange Members and Introducing Brokers) approved to trade 

the Products on its affiliated Designated Contract Market (“DCM”), Cboe Digital Exchange, LLC

(“CDE” or the “Exchange”), as applicable. 

The Procedures govern procedures around: on-boarding; pre-trade exposure limits; net stress 

exposure; post-trade credit exposure; FCM Clearing Member margin profiles; financial review 

metrics; margin rate and initial margin controls; on-going monitoring; and periodic reviews. 

Onboarding

The Procedures set forth Clearing Member requirements and required documentation that CCD 

must review and approve for Clearing Member applicants. This includes documentation in 

connection with Clearing Members’ financial resource requirements, required written risk 

management policies and procedures, and operational capacity requirements, including for 

Clearing Members with proprietary trading operations. The Procedures also detail the Clearing 

Member application review and approval process. 

Pre-trade Exposure Limits

The Procedures govern the process for setting up a Clearing Member’s pre-trade margin exposure 

limit and risk profile, initially based on information collected by CCD as part of the on-boarding 

process and updated in connection with on-going reviews. The Procedures also provide the process 

for setting a Clearing Member’s margin profile in the Clearinghouse systems, and set forth NonClearing Exchange Member financial requirements and CCD’s review of documentation in 

connection with such financial requirements. 

Net Stress Exposure

The Procedures govern processes around net stress exposure. Specifically, the Procedures provide 

that if a net stress exposure threshold is violated based on the end-of-day positions after all posttrade adjustments, then CCD will implement a margin add-on included in the FCM Clearing 

Member’s initial margin requirement for the morning settlement. The Procedures govern net stress 

4 Cboe Clear Digital Credit Risk Management Policy, Cboe Clear Digital Default Financial 

Resource Policy, and the Cboe Clear Digital Futures Price Sources and Pricing Model Policy, 

each of which CCD submitted as a rule change for self-certification on October 31, 2023 

(Submission No. 2023-05C).
exposure threshold maintenance and monitoring for FCM Clearing Members and Non-Clearing 

Exchange Member FCMs. 

Post-trade Credit Exposure

Pursuant to the Procedures, the Risk Management System will monitor credit exposure metrics on 

an intraday basis where real-time positions, prices, and collateral balances will be used in 

conjunction with estimated initial margin requirements using intraday positions at the account 

level. It sets forth credit exposure measures that will be monitored by the Risk Management System 

to determine if the early warning level or threshold is breached and generate alerts as appropriate. 

Such measures include: open trade equity, net settlement forecast, net stress exposure, position by 

contract and by product, and margin exposure. 

FCM Clearing Member Margin Profiles

The Procedures govern creation and application of margin profiles for FCM Clearing Members, 

including determination of outright and spread maximums and minimums assigned to a Clearing 

Member’s margin profile.

Financial Review Metrics

The Procedures provide for financial review metrics and processes applicable to FCM Clearing 

Members and Non-Clearing Exchange Member FCMs. 

Pursuant to the Procedures, on at least a monthly basis, all FCM Clearing Members’ and NonClearing Exchange Member FCMs’ 1FR-FCM filings will be obtained and reviewed to ensure 

they continue to meet the participation requirements, including but not limited to:

• financial resource minimum requirements; 

• evaluation of any contingent liability due to the Clearinghouse’s assessment powers 

compared to the FCM’s current financial resources as reported on the 1FR-FCM;

• identification of any potentially concerning trends with respect to capital, profitability, 

liquidity, among others; and

• the metrics for identifying potentially concerning trends within an FCM Clearing 

Member’s or Non-Clearing Exchange Member FCM’s financial filings (which are defined 

in the Financial Review Metrics document appended to the Procedures), and the applicable 

type/level of escalation and follow-up. 

Margin Rate and Initial Margin Controls

Pursuant to the Procedures, every Business Day, a series of processes are run using the current 

Reference Price (after 3:12 pm). These processes include generating tail risk parameters for the 

underlying assets for the futures contracts listed by Cboe Digital and margin rates for each listed 
futures contract and spread based on the Tail Risk parameters, basis risk adjustment, calendar risk 

adjustment, and spread charges.

The Procedures describe in detail the review and approval process for margin rates. The Procedures 

set forth specific review procedures for analyzing daily tail risk measure, the adequacy of the tail 

risk model and the adequacy of the clearing initial (customer maintenance) margin rates, and 

measuring the performance of the current risk adjustments relative to historical price movements 

of the contracts in each Clearing Member account by origin. The Procedures then provide steps 

for completing the margin rate approval process and publishing the margin rates.

Further, the Procedures govern monthly risk-based margin rate reviews and approval processes, 

SPAN file review and approval processes, initial margin requirement review and approval 

processes, and stress scenario monitoring. 

On-going Monitoring

The Procedures set forth the processes for on-going intraday monitoring, including setting early 

warning levels and thresholds, responses to alerts, threshold breaches or other changes in Clearing 

Member activity, and types/levels of certain alerts. Specifically, the Procedures govern monitoring 

around: pre-trade exposure limits; net stress exposure thresholds: post-trade credit exposure 

thresholds: post-trade risk alert monitoring; price data monitoring and alerting; system tasks 

intraday monitoring and alerting; Non-Clearing Exchange Member FCM intraday monitoring 

(including net stress exposure thresholds); FCM Clearing Member daily monitoring (including 

financial monitoring, notice filing reviews, credit and liquidity exposure monitoring, large trader 

monitoring); and Non-Clearing Exchange Member daily monitoring (including financial 

monitoring, and notice filing reviews). 

Periodic Reviews

Finally, the Procedures govern periodic reviews, including independent validation of models, 

stress scenario reviews, and the appropriateness of FCM Clearing Members’ pre-trade risk limits 

and post-trade risk thresholds, each on an annual basis, as well as FCM Clearing Members’ risk 

management policies and procedures at least every three years. 

Core Principle Compliance

CCD believes that its Risk Management Procedures are consistent with the DCO Core Principles 

as set forth in the CEA and has identified DCO Core Principles as potentially being relevant to the 

above amendments:

• Core Principle C (Participant and Product Eligibility) as the Procedures are designed to 

govern requirements and review around appropriate admission requirements for Clearing 

Members, along with procedures to verify, on an ongoing basis, Clearing Member 
compliance with DCO membership requirements, including financial resources. The 

Procedures also set forth appropriate product eligibility requirements in connection with 

CCD’s ability to measure risk for purposes of setting margin requirements; and

• DCO Core Principle D (Risk Management) as the Procedures ensure that CCD possesses 

the ability to manage the risks associated with discharging its responsibilities through the 

use of appropriate, tailored tools and procedures, specifically including CCD’s ability to:

o measure and monitor credit exposure to its Clearing Members;

o set, monitor, back-test and review daily margin rates;

o impose pre-trade exposure and risk limits on its Clearing Members;

o obtain from its Clearing Members large trader reports;

o measure and test net stress exposure of its Clearing Members;

o require its Clearing Members to maintain and allow CCD to review risk 

management policies and procedures; and

o take additional actions with respect to particular Clearing Members, when 

appropriate, based on the application of objective and prudent risk management 

standards.

Public Information

A notice and copy of this submission has been concurrently posted on Cboe Digital’s website at 

https://www.cboedigital.com/regulation/exchange-notices/ under “CFTC Submissions.”

Opposing Views

CCD is not aware of any opposing views expressed regarding this Rule Change.

Certification

CCD hereby certifies to the Commission, pursuant to the procedures set forth in Commission 

regulation §40.6, that this submission complies with the CEA, as amended, and the regulations 

promulgated thereunder.

Please contact me if you have any questions or wish to discuss this matter further.

Sincerely, 

/s/ Rebecca Tenuta

Rebecca Tenuta

Senior Counsel, Cboe Digital

rtenuta@cboe.com