Submitted via: CFTC Portal 

2022.08.12

August 12, 2022

Christopher Kirkpatrick 

Office of the Secretariat 

U.S. Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street NW 

Washington, DC 20581 

RE: Clear Markets North America, Inc.: Physically Settled Options 

Dear Mr. Kirkpatrick: 

Pursuant to Commodity Futures Trading Commission (“CFTC” or “Commission”) Regulation 40.6(a), 

Clear Markets North America, Inc. (“CMSEF”) hereby notifies the Commission pursuant to 

Commission Regulation 40.2, of its product listing of CMSEF Physically Settled Options (“CMSEF 

Physical Options”) on CMSEF beginning August 24, 2022 (the “Submission”). 

The Submission contains the following: 

1. A summary of the terms of the CMSEF Physical Options specifications; 

2. The listing date of the CMSEF Physical Options; 

3. An explanation and analysis of the CMSEF Physical Options’ compliance with the relevant Core 

Principles for Swap Execution Facilities (“SEF Core Principles”) as set forth by section 5h of the 

Commodity Exchange Act; 

4. A certification that, concurrent with the filing of the Submission, CMSEF posted on its website a 

notice of pending certification of the CMSEF Physical Options with the Commission. 

I. Summary of Terms of the CMSEF Physical Options

Physical Options

Seller / Buyer USD 

Exercise The buyer of the option must notify the seller of 

the option of the buyer’s intent to exercise the 

option during business hours on the expiration 

date of the option. Notice shall be in the form and 

manner as agreed by the counterparties. 

Physically-Settled BTC, ETH 

Stated Tenors 1d, 2d, 3d, 5d, 7d, 14d, 21d, 28d,1m, 2m, 3m, 

6m, 1y, custom 
2022.08.12

Business Day Convention Modified Following, Following, Preceding, None

Holiday Calendar New York, Tokyo, London, None 

Cleared No 

Settlement Determined by Participants in conformity with 

CMSEF Rulebook Rule 303A, which requires all 

Participants to represent to CMSEF in writing 

that they have entered into the necessary 

documentation in their trading and credit support 

bilateral agreements to address:

a) liabilities caused by an event that delays 

settlement of the Swap;

b) settlement of a Swap where the settlement 

occurs in a Cryptocurrency that has been subject

to a Hard Fork; and

c) when Settlement Finality occurs.

Settlement Method Physical 

Exercise method: Determined by Participants 

Exercise procedure: Determined by Participants 

Strike price listing provisions: Determined by Participants 

Strike price intervals: Determined by Participants 

Quantity Determined by Participants

Effective Date Date on which parties begin calculating accrued 

obligations 

End Date Date on which obligations no longer accrue 

Trading Hours M-F (9AM – 5PM) New York (may be extended 

upon request at discretion of CMSEF) 

Block Trades Yes (minimum 5 BTC or 5 ETH) 

Position Limits Set by: Part 151 of CFTC Regulations; CMSEF 

Rule 413A 

Position Accountability and Reporting Set by: Part 15 of CFTC Regulations; CMSEF 

Rule 413B 

II. Listing Date

The intended listing date of the CMSEF Physical Options is August 24, 2022. 
2022.08.12

III. Analysis of Compliance with Core Principles

We have reviewed the SEF Core Principles and have identified that the listing of CMSEF Physical Options 

may have bearing on SEF Core Principle 3: Swaps Not Readily Susceptible to Manipulation. For the 

reasons stated below we believe that the listing of CMSEF Physical Options complies with the Commodity 

Exchange Act and SEF Core Principle 3. 

A. The Underlying Bitcoin and Ethereum Market is not Readily Susceptible to Manipulation 

Bitcoin was created by Satoshi Nakamoto, a pseudonymous person or team who outlined the technology 

in a 2008 white paper. The Bitcoin network went live in 2009. 

The network’s native cryptocurrency token is bitcoin. According to Coinmarketcap.com 

(https://coinmarketcap.com/), the market cap for all digital assets is over $921 BN. Bitcoin is the largest 

cryptocurrency by market capitalization, estimated to be $389 BN as of July 7, 2022. The 24-hour trading 

volume in bitcoin for July 7, 2022, was $21.6 BN. Bitcoin is traded against many other crypto pairs (e.g., 

Ether) and in a number of fiat currency pairs. 

Ethereum was conceived in 2013 by Vitalik Buterin and the network went live on July 30, 2015. Ethereum 

allows anyone to deploy permanent and immutable decentralized application onto it, with which users can 

interact. A series of upgrades called Ethereum 20 includes a transaction to a proof of stake and aims to 

increase transaction throughput by using sharding. 

The network’s native cryptocurrency token is Ether. Ether is the second largest cryptocurrency by market 

capitalization, estimated to be $143.9 BN as of July 7, 2022. The 24-hour trading volume in bitcoin for 

July 7, 2022, was $13 BN. Ether is traded against many other crypto pairs (e.g., Bitcoin) and in a number 

of fiat currency pairs. 

Every transaction involving Bitcoin or Ethereum is tracked on their respective network ledgers which are 

public and permissionless. Unlike a bank’s ledger, the Bitcoin and Ethereum blockchains are distributed 

across their entire network. No company, country, or third party is in control of them; and anyone can 

become part of their networks.

Several Bitcoin and Ether futures and options have already been listed on various designated contract 

markets (DCMs) and SEFs. Further, while bitcoin is not a currency, in many ways it is traded and used 

like a currency. Therefore, physically-settled USD/BTC and USD/ETH Options would share many 

features with FX Options.

B. Conditions that Prevent the CMSEF Physical Options from Being Readily Susceptible to 

Manipulation 

Clear Markets has established rules and an enforcement infrastructure to prevent the manipulation of the 

Contract. The contract specifications for the CMSEF Physically Delivered Options were drafted to 

conform with the guidance and/or acceptable practices in appendix B of Part 37 of the CFTC Regulations 

and appendix C to part 38 of the CFTC Regulations. 
2022.08.12

C. Settlement Procedure 

The settlement of CMSEF Physical Options occurs off-SEF in accordance with the terms of the trading 

relationship between the parties subject to CMSEF Rule 303A. CMSEF may use its records request 

authority in order to ensure that the proper settlement of CMSEF Physical Options occurs, particularly in 

the first six months of operation. This additional layer of protection is warranted due to the novelty of the 

CMSEF Physical Options contract, settlement of which requires the transfer of a digital asset, and 

CMSEF’s obligation to ensure the financial integrity of transactions on its platform. 

IV. Position Limits or Accountability

Clear Markets has established the following large trader reporting for CMSEF Physical Options: 

Reportable at 25,000 BTC or 20,000 ETH across all tenors, consistent with market practice. 

V. Certification 

CMSEF hereby certifies that: 

The CMSEF Physical Options comply with the Commodity Exchange Act, 7 U.S.C. §1 et seq. and the 

regulations thereunder. 

This Submission has been concurrently posted on CMSEF’s website at http://www.clear-markets.com/. 

* * * * * 

If you have any questions regarding the above, please contact me at shawn@clearmarkets.io or +1-704-

906-8277. 

Respectfully submitted, 

Shawn A. Dorsch

Chief Executive Officer

Clear Markets North America, Inc.