November 9, 2023 

Christopher J. Kirkpatrick 

Secretary

Commodity Futures Trading Commission 

Three Lafayette Centre

1155 21st Street, N.W. 

Washington, D.C. 20581 

 

Re: Cboe Digital Exchange, LLC Product and Rule Certification for PhysicallySettled Margin Futures on Bitcoin Submission Number CDE-2023-10E 

Dear Mr. Kirkpatrick:

Pursuant to Section 5c(c)(1) of the Commodity Exchange Act, as amended (“Act”), and 

Regulation 40.2 and Regulation 40.6 of the regulations promulgated by the Commodity 

Futures Trading Commission (“CFTC” or “Commission”) under the Act, Cboe Digital 

Exchange, LLC (“CDE” or “Exchange”) hereby submits terms and conditions for physicallysettled bitcoin futures on a margined basis (“Product”) to be traded on CDE and accompanying 

rule amendments to incorporate the Product into CDE’s rules (“Amendment”).

This submission contains the following: 

• A summary of the terms and conditions of the Product; 

• A summary of the rule changes being made as part of the Amendment to incorporate 

the Product into CDE’s rules; 

• An explanation and analysis of the Product’s and the Amendment’s compliance with 

the applicable provisions of the Act, including the Designated Contract Market 

(“DCM”) Core Principles (“Core Principles”), and the Commission regulations 

thereunder; 

• A certification that the Product and Amendment comply with the Act and Commission 

regulations thereunder; 

• A certification of a notice of pending product and rule certification with the 

Commission and a copy of the submission on the Exchange’s website; 

• A copy of the Product contract specifications attached as Exhibit A; 

• The rule changes included in the Amendment attached as Exhibit B; and

• A copy of the Cboe Kaiko Rates methodology attached as Exhibit C. 

The terms and conditions for the Product and the Amendment will become effective on 

November 27, 2023 (“Effective Date”). The Product may be listed for trading on CDE on or 

after the Effective Date on a date to be announced by the Exchange through the issuance of an 

Exchange notice. 
2 

Product Description

As stated, the Exchange plans to list physically-settled bitcoin futures (“BTC”) on a margin 

basis.

1 The Exchange notes that up until recently it listed physically-settled futures contracts 

on bitcoin on a fully-funded basis, that is, they were fully-funded at the time of execution, with 

final settlement at execution price. The Exchange removed its offering of fully-funded bitcoin 

futures products in anticipation of launching the margined Product. 

Underlying Digital Asset Market 

Bitcoin is a digital asset based on the decentralized, open-source protocol of a peer-to-peer 

payments network. The Bitcoin network hosts the decentralized public transaction ledger, the 

Bitcoin blockchain (or ledger), on which all bitcoin is recorded. The blockchain is a linked 

body of data, made up of units called blocks containing information about each transaction 

processed. Blocks are created by “miners” that solve highly complex mathematical problems. 

The bitcoins themselves are the assets that can be transferred on the network, to which one 

claims ownership. No single entity owns or operates the Bitcoin network. The infrastructure 

of the Bitcoin network is collectively maintained by a decentralized user base. The Bitcoin 

blockchain is capped at 21 million bitcoin. As of October 2023, the total supply of bitcoin is 

approximately 19.5 million bitcoins, which represents close to $660 billion in market 

capitalization. The 21 million bitcoin limit is anticipated to be reached sometime in 2140. 

Bitcoin may be obtained through various methods, including paying cash for bitcoin or 

providing a good or service in exchange for bitcoin (including exchange on the secondary 

market); or verifying other bitcoin transactions through mining, which rewards miners with 

bitcoin, thus incentivizing more miners to try to solve the mathematical problems in turn 

making the network more secure. 

Since early 2019, the volume traded in bitcoin has experienced substantial growth. The 

30-day moving average of dollar value of USD-based bitcoin volume has grown from $675 

million in February 2019 to approximately $4.8 billion as of October 2023 2

Contract Specifications

The Product is based on the price of bitcoin in U.S. dollars based on the Cboe Kaiko 

Bitcoin Rate (“CKBR”) Index.

3 These futures are designed to reflect economic exposure related 

to the price of bitcoin. As reflected in the attached contract specifications (Exhibit A) and in 

revised Chapter 11 of the CDE Rulebook, the contract specifications for the Product include 

the following: 

1 The Exchange additionally plans to submit product certifications for and list the following margined 

products: physically-settled Ether futures (“ETH”) on a margin basis; financially-settled bitcoin futures 

(“FBT”) on a margin basis; and financially-settled Ether futures (“FET”) on a margin basis.

2 Statistics derived from https://rates.coinmetrics.io/. 3

 The Cboe Kaiko Reference Rates are customized rates, developed by Kaiko for Cboe Digital. 
3 

The contract unit for a BTC futures contract will be 1 bitcoin, as represented by CKBR.

and the minimum tick increment is $5.00 per bitcoin (thus, $5.00 per contract). The Product 

prices will be quoted in USD per 1 bitcoin. 

CDE may list up to 3 weekly expirations, the nearest 2 serial months and the nearest 4 

quarterly months in the Product. Expiry will occur in the same manner as it did for fully-funded 

bitcoin futures; 10:00 a.m. CT on the Friday of the expiry week or on the last Friday of the 

contract month, as applicable. If expiry Friday is a non-business day, then expiration will occur 

on the preceding business day. 

Block Trades will be permitted in the Product provided that they satisfy the requirements 

of CDE Rule 601 (Block Trades). Block Trades may be negotiated in $0.01 increments in the 

Product, as was the permissible increment for Block Trades in the Exchange’s fully-funded 

bitcoin futures product offering. The Block Trade minimum size for BTC futures will be 5 

contracts, which is smaller than that of its financially-settled counterpart,

4 to account for the 

larger minimum contract sizes, price increments and notional values of BTC futures contracts. 

The position limits for the Product will be 8,500 contracts. The position limits for the 

Product are generally lower than the position limits imposed by other DCMs for substantively 

the same products.5 The Exchange reviewed the position limits from a volume perspective as 

compared to volume underlying another DCM’s bitcoin futures product. Specifically, the 

Exchange reviewed the volume of spot bitcoin transactions across the constituent exchanges 

that comprise the CKBR as compared to the volume of spot bitcoin transactions in the 

constituent exchange that comprises the MarketVector Coinbase Bitcoin Benchmark Rate. The 

MarketVector Coinbase Bitcoin Benchmark Rate is used to settle a comparable bitcoin futures 

product on Coinbase Derivatives6 that currently have a position limit of 20,000. The volume 

in the CKBR was approximately 43% of the volume in the MarketVector Coinbase Bitcoin 

Benchmark Rate. As such, the Exchange believes it is reasonable to set position limits that 

represent approximately 43% of the position limits applicable to the Coinbase bitcoin futures. 

Additionally, the Exchange notes that it is a common practice to set position limits so that 

a market participant holds no more than 25% of the deliverable supply of a commodity. As 

stated above, the current supply of mined bitcoin is approximately 19.5 million bitcoins. 

However, approximately 20% of mined bitcoin is “burned”, or permanently lost. Therefore, 

the deliverable supply of bitcoin currently in circulation is approximately 15.6 million bitcoins, 

and 25% of that deliverable supply is approximately 3.9 million bitcoins. A position limit of 

4 See supra note 1. CDE intends to list financially-settled bitcoin futures with a minimum block size of 

10 contracts. 

5 For example, Coinbase Derivatives offers a bitcoin futures contract with a contract size of 1 and 

position limit of 20,000 contracts, larger than that of BTC futures. See Coinbase Derivatives Exchange 

Rulebook. CME also has position limits that are notionally larger than the Product’s limits, offering a 

bitcoin futures contract with a contract size of 5 bitcoin and a position limit of 4,000, thus a position 

limit equal to a notional of 20,000 bitcoin, compared to BTC futures (size of 1 bitcoin x 8,500 limit). 6 See supra note 5. 
4

8,500 BTC contracts is reasonable as it is well-below 25% of the global supply. 

Finally, the Exchange analyzed any possible impact the proposed position limits could have 

on susceptibility to manipulation, and believes the position limits in place are set at a 

reasonable level that does not lead to any incentive to manipulate the CKBR. As described in 

further detail below, Cboe Kaiko Rates7 methodology uses a volume-weighted median and 

time-weighted calculation on the trading activity over an hour look-back. Therefore, even if 

one or more of the constituent exchanges were experiencing relatively lower volume during 

the hour look-back leading up to the final settlement price (i.e., the CKBR reference rate at 

10:00 a.m. CT, as described below), any attempt to manipulate the final rate through activity 

in the lower-volume constituent exchange(s) would not be impactful. The volume- and timeweighted index calculation decreases the likelihood in any attempt to manipulate the price over 

the full period of time by limiting the impact of any one transaction and highly mitigating the 

risk of incorporating outliers into the calculation. As such, in order to impact the index price 

at expiration (i.e., the final settlement price), a significant majority of the volume across all of 

the constituent exchanges—not just any exchange that may be experiencing lower volume on 

that particular day—would have to be manipulated. Further, this would have to occur over a 

period of one hour. This would make any attempt at manipulation inherently very costly as 

arbitrage opportunities reduce any price divergences continuously over time. The proposed 

position limits set well-under the 25% of deliverable supply and at a limit proportional to 

volume/limits on another DCM will serve to further reduce, if not eliminate, any already de 

minimis incentive to manipulate the settlement as mitigated by the applied index methodology. 

The Large Trader reporting requirements under CDE Rules 532 and 533 will apply to the 

Product. The Large Trader reporting threshold applicable to BTC futures is 5 contracts. The 

Exchange believes that the reporting thresholds appropriately correspond to the Product’s size.

The Exchange will determine the final settlement price for the Product based on the 

reference rate of the CKBR at the time of expiration (i.e., at 10:00 a.m. CT on expiration 

Fridays). Pursuant the Cboe Kaiko Rates methodology, the rate of the CKBR at a given hour 

(e.g., at 10:00 a.m. CT for the final settlement price), represents the price of bitcoin in U.S. 

dollars by aggregating trade data from the eligible trading venues that comprise the CKBR 

during a one-hour calculation window (e.g., 9:00 a.m. through 10:00 a.m. CT for the CKBR 

rate for which the final settlement price is based).

Pursuant to Exchange Rule 906(c) and the Product’s contract specification, the Product’s 

final settlement price is based on the CKBR. The CKBR provides a USD-denominated 

reference rate for the spot price of bitcoin. The Cboe Kaiko Bitcoin Rate leverages real-time 

prices from the constituent exchanges to provide a reliable and accurate reflection of the 

underlying bitcoin spot market. The CKBR represent the price of bitcoin by aggregating trade 

data from eligible trading venues during one-hour calculation windows. Kaiko implements an 

aggregation methodology that consists of a look-back that splits the one-hour reference rate 

calculation periods into ten six-minute segments (or, “partitions”) and, for each partition,

7

 Currently, the Cboe Kaiko Rates include the CKBR and the Cboe Kaiko Ether Rate (“CKER”). 
5 

calculates the most representative trade price used for the final rate calculation. Specifically, 

executed trades in each partition are subject to a volume-weighted median price calculation. A 

time-weighted average price calculation is then applied to each partition’s volume-weighted 

median (providing more weights to the last partitions which are the most recent). The ten 

weighted partition prices are then aggregated to provide the final index reference rate for the 

hour. 

Pursuant to the Cboe Kaiko Rates methodology, if for any reason any constituent 

transactions are identified as potentially suspect within a partition, the most representative 

trade may be adjusted to disregard spurious data. In addition, Kaiko may remove a constituent 

exchange or otherwise revise its methodology to ensure the Cboe Kaiko Rates, which includes 

the CKBR, continue to reflect the target underlying economic reality, particularly if a 

constituent exchange has been found to have experience an “exclusion action” such as fraud, 

market manipulation, or significant loss of volume or liquidity. Further, CDE will conduct 

reviews of each final settlement price and, pursuant to Rule 906(c), as amended, if CDE 

concludes that the final settlement price based on the CKBR rate at 10:00 a.m. CT does not 

fairly represent the market value of the period, CDE may determine an alternative settlement 

price, based upon, among other things, a third party or combination of third-party index or 

reference prices. The Exchange also notes that, pursuant to Rule 906(d), the Exchange’s 

affiliated derivatives clearing organization (“DCO”), Cboe Clear Digital, LLC (“CCD”), 

through which all products, including the Product, are settled and cleared, may modify 

settlement prices in its discretion in accordance with CCD rules.

For the purpose of any Kaiko reference rates computation, including the Cboe Kaiko Rates, 

Kaiko implements strict vetting of data sources to include only the trusted and liquid 

exchanges. The Cboe Kaiko Bitcoin Rate follows a quarterly rebalancing calendar (March, 

June, September and December). An asset-agnostic vetting process for the Cboe Kaiko Rates 

is carried out on a quarterly basis by the Kaiko team and approved by the Kaiko Exchange 

Ranking Steering Committee. Each underlying exchange must meet the following criteria as 

part of the vetting process: is absent from any sanction list; has been operating for the past five 

years; is located in a stable and open country; is regulated by an independent government body; 

has KYC/AML controls in place; has trading policies in place; offers reliable REST API and 

WebSocket data feeds; offers reliable live and historical trade data; and provides cold storage 

for customers funds. Additionally, the liquidity of each exchange is assessed to only consider 

meaningful contributors, defined as at least 0.5% of the total observed liquidity over the past 

three months. The observed liquidity is the 90-day volume measured for all Kaiko-vetted 

exchanges.8

 

A description of the procedures and rules governing the Cboe Kaiko Rates will be posted 

on the Kaiko website and a copy of which is provided as an informational part of this 

submission in Exhibit C. 

8 The Kaiko-vetted exchange include: Bitflyer, Binance, Bittrex, Coinbase, Coincheck, CEX.io, 

Currency.com, Cboe Digital, Gemini, itBit, Kraken, LMAX, Luno, OKcoin, OSL, Bitstamp, Upbit and 

Zalf.
6 

Each of the underlying component exchanges has a comprehensive set of rules or binding 

terms and conditions for members. The rules or terms and conditions governing activity on 

each underlying exchange have provisions in place that prohibit members from engaging in 

fraudulent acts, market manipulation and abusive practices.9 The Exchange understands that 

each underlying exchange has surveillances in place to monitor for market abuse and other 

trade practice violations. Additionally, each of the constituent exchanges is regulated as a 

money services business (“MSB’) under Financial Crimes Enforcement Network (“FinCEN’) 

and subject to strict anti-money laundering and know-your-customer (“AML/KYC Program”)

compliance obligations. 

At the time of this submission, the Cboe Kaiko Bitcoin Rate has four eligible trading 

venues: LMAX Digital, Bitstamp, itBit and Cboe Digital.

10 The Exchange represents that it 

has or will have entered into an Information Sharing Agreement (“ISA”) that complies with 

CFTC guidance and requirements with each of the non-Cboe-affiliated three other constituent 

exchanges11 that comprise the CKBR prior to listing the Product for trading on the Exchange. 

Additionally, Kaiko will provide CDE the trades (by timestamp, symbol, price, quantity, and 

underlying exchange) that make up the Cboe Kaiko Bitcoin Rate during final settlement price 

period (9:00 a.m. to 10:00 a.m. CT) to assist CDE’s ability to monitor trading in the reference 

indices. Prior to and during the final settlement price period on the final settlement date for 

the Product, CDE will monitor the bitcoin transactions in U.S. dollars on those trading venues 

using the information that is available to CDE and request additional information from the 

trading venues as appropriate.

CDE conducted an analysis of the Cboe Kaiko Bitcoin Rate prices compared to other 

bitcoin indices over the last year to determine whether the Cboe Kaiko Bitcoin Rate is 

representative of the broader bitcoin market. Specifically, the analysis compared the Cboe 

9 See Cboe Digital Spot Market Rules available at: https://www.cboedigital.com/wpcontent/uploads/CboeDigital/Cboe%20Digital%20Exchange%20Rulebook%20%2820231023%29.pd

f; Itbit’s Marketplace Rules available at: https://paxos.com/market-manipulation-protection/; LMAX 

Digital Rulebook at: www.lmaxdigital.com/documents/LMAXDigital-Rulebook.pdf; and Bitstamp’s 

Terms of Use available at: https://www.bitstamp.net/legal/terms-of-use/inc/. 10 The Exchange currently operates a digital asset spot market, separate from its DCM (“Cboe Digital 

Spot Market”). The Cboe Digital Spot Market is regulated as a money services business (“MSB’) under 

Financial Crimes Enforcement Network (FinCEN) and is licensed in various states in accordance with 

state money transmitter licensing (“MTL”) requirements. The Exchange implements best practices of 

a traditional financial market surveillance program designed around CFTC Core Principles which was 

established to help protect investors and the integrity of our markets. Participation in the Cboe Digital 

Spot Market is governed by a comprehensive Rulebook and membership requirements, and subject to 

substantially the same market surveillance program as for Cboe Digital’s futures market. The Cboe 

Digital Spot Market offers trading in bitcoin (BTC) and Ether (ETH) in U.S dollars on a central limit 

order book (“CLOB”), which allows for continuous interactions between fully-displayed marketable 

orders and limit orders. Cboe Digital Exchange requires all orders placed in BTC and ETH on its spot 

market to be fully-funded. 

11 As Cboe Digital’s spot market and futures market are part of the same legal entity, Cboe Digital 

Exchange, LLC, an ISA does not need to be in place to access such information. 
7 

Kaiko Bitcoin Rate against the daily CME CF Bitcoin Reference Rate12, the weekly CoinDesk 

Bitcoin Price Index rate, and the Kaiko Bitcoin Reference Rate. The CME CF Bitcoin 

Reference Rate is comprised of pricing sourced from Bitstamp, Coinbase, Gemini, itBit, 

Kraken, and LMAX Digital; the CoinDesk Bitcoin Price Index rate is comprised of pricing 

sourced from Bitstamp, Coinbase, Kraken, and LMAX Digital; and the Kaiko Bitcoin 

Reference Rate is comprised of pricing sourced from Coinbase, Gemini, LMAX Digital, 

Kraken and Bitstamp. As such, the pricing sources that comprise the Cboe Kaiko Bitcoin 

Reference Rate, the CME CF Bitcoin Reference Rate, the CoinDesk Bitcoin Price Index Rate 

and the Kaiko Bitcoin Reference Rate are representative of the broader digital asset spot 

market.

CDE reviewed the correlation between the daily returns of the Cboe Kaiko Bitcoin Rate 

and the CME CF Bitcoin Reference Rate.

13 CDE identified a 0.998 correlation between the 

Cboe Kaiko Bitcoin Rate and the CME CF Bitcoin Reference Rate. A 0.998 correlation 

indicates the rates’ prices are very strongly aligned. 

CDE also reviewed the correlation between the daily returns of the Cboe Kaiko Bitcoin 

Rate and the Kaiko Bitcoin Reference Rate. CDE identified a 0.999 correlation between the 

Cboe Kaiko Bitcoin Rate and the Kaiko Bitcoin Rate. A 0.999 correlation indicates the rates’ 

prices are very strongly aligned. 

Cboe Digital also reviewed the differences between the Cboe Kaiko Bitcoin Rate and the 

daily CME CF Bitcoin Reference Rate, the weekly CoinDesk Bitcoin Price Index ratesand the 

hourly Kaiko Bitcoin Reference Rate over a year look-back:

14 

• The average difference between the daily CME CF Bitcoin Reference Rate and 

Cboe Kaiko Bitcoin Reference Rate was 0.06%, and the median difference 0.03%; 

• The average difference between the weekly Coindesk Bitcoin Price Index and Cboe 

Kaiko Bitcoin Reference Rate was 0.13%, and the median 0.1%; and

• The average difference between the hourly Kaiko Bitcoin Reference Rate and the 

Cboe Kaiko Bitcoin Reference Rate was 0.01%, and the median difference 

0.0096%. 

CDE’s analysis demonstrates that the Cboe Kaiko Bitcoin Rate adequately and consistently 

represent the price of the bitcoin spot market due to high price correlation and marginal, price 

divergence as compared to other digital asset spot market indexes generally representative of 

the wider spot market. CDE notes that such marginal differences in reference prices, in 

12 CME Bitcoin futures are based on the CME CF Bitcoin Reference Rate.

13 The CME CF Reference Rates are published daily at 4:00 pm ET. CDE conducted this review on the 

daily rates at 4:00 pm ET from November 2022 through October 2023. 

14 See supra note 13 regarding CDE’s review timeframe for the CME CF Reference Rates. Regarding 

CDE’s review timeframe for the CoinDesk Index rates, CDE reviewed the CoinDesk Index rates at 

weekly expiration (each Friday at 10:00 am CT) from September 2022 through September 2023. 

Regarding CDE’s review timeframe for the Kaiko Reference Rates, CDE reviewed the Kaiko Reference 

Rates each hour from December 2020 through October 2023. 
8 

particular when compared to the CoinDesk Bitcoin Price Index rate and CME CF Bitcoin 

Reference Rate, are by and large due to the differences in index methodology calculations 

between the different indexes. 

Additionally, CDE conducted an analysis of the volume over the last year15 during the final 

settlement price period (9:00 a.m. to 10:00 a.m. CT) between the Cboe Kaiko Bitcoin Rate and 

the Lukka Bitcoin Reference Rate, which is used to settle comparable digital asset futures 

products certified for offering by another DCM and is based on prices sourced from only two 

exchanges.

16 CDE identified that, on average, the volume included in the Cboe Kaiko Bitcoin 

Rate was three times greater (or 192% greater) than the volume included in the Lukka Bitcoin 

Reference Rate. This further emphasizes the fact that the Cboe Kaiko Bitcoin Rate is 

representative of the broader market and the exchange constituents experience deeper levels

liquidity as compared to another digital asset index on which competing futures products 

currently may be offered. 

Additional Product Information

In addition to the above, the Exchange notes that the applicable margin methodology for 

the Product will be calculated and administered by CCD, the Exchange’s affiliated DCO, 

through which all products, including the Product, are settled and cleared. A participant trading 

in the Products on the Exchange will be required to clear all transactions in the Product through 

a futures commission merchant (“FCM”) clearing member of CCD.17 Margin for the Product 

will be computed on a daily basis and posted daily on the Cboe Digital website. 

Legal Conditions 

CDE has undertaken a due diligence review of the legal conditions, including conditions 

that relate to contractual and intellectual property rights, which may materially affect the 

trading of the Product. Kaiko has granted a license to CDE permitting CDE to use the Cboe 

Kaiko Rates, including the CKBR, for the purposes of providing settlement prices for CDE’s 

futures contracts. Kaiko is permitted to use CDE data for the Cboe Kaiko Rates, and CDE also 

understands that Kaiko has data licensing agreements in place with the other three constituent 

exchanges. 

Potential Product Use 

15 From January 2022 through October 2023. 

16 MGEX’s BTF Futures Contracts and TINI Futures Contacts are based on the Lukka Bitcoin 

Reference Rate, which is comprised only of trade prices executed on Gemini and Bitstamp.

17 The margin methodology implements a filtered historical simulation method for implementing valueat-risk (“FHSVaR”) using a lookback period of five years (or longest available) and two-day market 

return and 99th percentile (0.5 percent for each tail of the distribution) risk coverage. The FHSVaR 

approach uses historical changes in spot bitcoin and Ether price returns to generate historical 

distribution and does not rely on any assumptions regarding distributional shape or distributional 

parameters.
9 

As the Product’s prices are derived from the Cboe Kaiko Bitcoin Rate, which accurately 

reflect the underlying spot market, market participants may use the Products to achieve both 

long and short exposure to the price of bitcoin. The Products will allow miners to hedge 

production costs, bitcoin merchant processors to hedge inventories, merchants that accept 

bitcoin to hedge inventories, and holders of bitcoin to adequately hedge their holdings in a less 

capital-intensive manner than that of fully-funded futures. The Product will likewise provide 

liquidity providers with a less capital-intensive means to hedge their bitcoin exposure from 

their transactions on the Cboe Digital Spot Market, other exchanges, in the over-the-counter 

markets, and on other markets for bitcoin derivatives. BTC futures will allow market 

participants that hold or anticipate holding bitcoin to adequately hedge their holdings as well 

as take delivery of the underlying digital asset. 

BTC futures have a 1 bitcoin contract size with a $5.00 price increment, which may assist 

larger, crypto-familiar institutions that seek to utilize larger contract sizes and highercapitalized firms with the capacity to make or take delivery of the underlying digital asset to 

achieve their business needs. Price increments across the two settlement styles of the margined 

bitcoin futures that CDE plans to offer18 complement each other while allowing for aggregation 

of size compared to the underlying digital assets, which typically trade at $0.01 increments. 

Customers trading in BTC futures will benefit from the correlated larger size and larger price 

increments as customers will be able to fill such larger sizes without their orders receiving fills 

across numerous price levels. 

Rule Changes

The Amendment updates the Exchange rules to incorporate the Product’s contract 

specifications, as described herein above and reflected in Exhibit A, into Rule 1101.19

Specifically, the Amendment incorporates subparagraph (a) into Rule 1101, which provides 

for the contract specifications applicable to margin-based physically-settled BTC futures. 

 Additionally, the Amendment updates the Position Limit, Position Accountability, 

Reportable Level, and Volume Threshold Level Table (“Table”) in Rule 533 to reflect the 

levels applicable to the Product. Specifically, the Table is being updated to reflect the Large 

Trader and position limit levels for the Product as described in detail in the “Contract 

Specifications” section above, and to reflect a reportable volume threshold of 50 contracts

18 The financially-settled bitcoin futures contract the CDE also plans to offer (FBT) has a 0.1 bitcoin 

contract size with a $1.00 price increment.

19 On October 27, 2023, CDE submitted a self-certification (Submission Number 2023-05E) to remove 

the contract specifications for fully-funded physically-settled BTC and ETH futures from Rules 1101 

and 1102, respectively. Submission Number 2023-05E will become effective on November 13, 2023. 

Exhibit B reflects Rule 1101 as amended pursuant to Submission Number 2023-05E. This rule change 

additionally removes the contract specs for futures on the Ether Bitcoin Pair in Rule 1103. The 

Exchange no longer lists, and in anticipation of its margin futures offering does not intend to re-list, 

these futures contracts. 
10 

applicable to the Product.20 The Amendment also adds language to Rule 533 clarifying that 

such other volume threshold reportable levels than those set forth in the Table may otherwise 

be designated by the Commission.21 

 The Amendment also adds new Rule 540 to address temporary trading halts 

applicable to the Products.22 Rule 540(a) provides that the market for a Contract (which 

includes the Products) will enter into a halt state for a period of time designated by the 

Exchange, during Trading Hours for the Contract, if a circuit breaker is triggered: the price of 

a bid (offer) in the Contract is higher (lower) than a percentage designated by the Exchange 

as compared to the highest (lowest) bid (offer) observed during the lookback window as 

designated by the Exchange. The Exchange shall publish the circuit breaker parameters as 

designated by the Exchange on its website. Further, Rule 540(b) provides that the Exchange 

may, in its discretion, temporarily halt trading in a Contract or modify the circuit breaker 

parameters, including the time of a halt state, to preserve market integrity in a Contract 

market. The proposed rule additionally provides that any action taken in response to an 

Emergency is governed by Rule 212, including notification to the CFTC of any Emergency 

Rule in accordance with CFTC Regulations.

Finally, the Amendment updates Rule 906 to add subparagraph (c), which explicitly 

provides for the Exchange’s determination of the final settlement price of the Products, as 

defined in the “Contract Specifications” section above, as well as the Exchange’s 

discretionary authority to determine an alternative settlement price if the Exchange concludes 

the final settlement price does not fairly represent the market value.23

. 

Compliance

CDE believes that the Products and the Amendment are consistent with the DCM Core

Principles under Section 5 of the Act. In particular, CDE believes that the Product and the 

Amendment are consistent with the following DCM Core Principles: 

DCM Core Principle 2 (Compliance with Rules) because CDE Rules include 

prohibitions against market manipulation and fraudulent, non-competitive, and disruptive 

trading practices that will apply to trading activity in the Product and CDE will conduct 

monitoring and surveillance of trading in the Product for compliance with CDE Rules;

DCM Core Principle 3 (Contracts not Readily Susceptible to Manipulation) because

20 Like for fully-funded bitcoin futures contracts previously offered by the Exchange, there are no 

position accountability levels applicable to the Product. 

21 For consistency and clarity, the additional language in Rule 533 will also be reflected in the rule 

change amendments as part of CDE’s submissions for FBT, ETH, and FET. 

22 For consistency and clarity, new Rule 540 will also be reflected in the rule change amendments as 

part of CDE’s submissions for FBT, ETH, and FET. 

23 For consistency and clarity, new Rule 906(c) will also be reflected in the rule change amendments as 

part of CDE’s submissions for FBT, ETH, and FET. 
11 

of, among other things, the following factors: 

• The underlying digital asset market is a highly liquid and capitalized market, wherein 

the dollar value of bitcoin volume is currently approximately $4.8 billion; 

• The methodology and constituent structure of the Cboe Kaiko Bitcoin Rate promotes 

the integrity of the settlement price and discourage manipulative conduct. They do so 

because: 

o The Cboe Kaiko Bitcoin Rate is calculated from a high volume of trades across 

four eligible trading venues during the final settlement period and, due to deep 

liquidity, particularly regarding the volume across CKBR constituents as 

compared to volume across constituents that comprise a rate used to settle 

comparable digital asset futures products certified for offering by another DCM 

(as detailed above), are not generally susceptible to manipulation. As 

demonstrated and explained above, the Cboe Kaiko Bitcoin Rate experiences 

volume during the final settlement period well-above that of the volume 

experienced during the final settlement period in a comparable digital asset 

index (comprised of only two constituent exchanges) on which competing 

futures products currently may be offered;24

o The Cboe Kaiko Bitcoin Rate accurately represents the underlying spot market 

prices. As demonstrated and explained above, Cboe Kaiko Bitcoin Rate 

adequately and consistently represents the price of the bitcoin spot market due 

to high price correlation and insignificant levels of price divergence as 

compared to other digital asset spot market indexes generally representative of 

the wider spot market; 

o Each index is comprised of multiple constituents. Therefore, to manipulate the 

index price a market participant would have to manipulate the prices in most if 

not all the constituent exchanges—a prohibitively costly endeavor. Arbitrage 

opportunities across multiple digital asset trading venues serves to reduce price 

discrepancies and converge prices. The Exchange notes that comparable digital 

asset futures products certified for offering by at least one other DCM are based 

on rates comprised of less than four constituent exchanges; 25

o Focusing the volume- and time-weighted calculations on the trading activity 

over an hour look-back decreases the likelihood in any attempt to manipulate 

the price over the full period of time by limiting the impact of any one 

transaction and highly mitigating the risk of incorporating outliers into the 

calculation. The one-hour look-back also greatly increases the cost of any 

attempt to manipulate due to arbitrage opportunities during the calculation 

window; 

o The Cboe Kaiko Bitcoin Rate is calculated using six 10-minute partitions. 

Calculation of the reference rate across six partitions limits any impact of 

attempted manipulation as transactions made in an attempt to manipulate 

24 MGEX’s BTF Futures Contracts and TINI Futures Contacts are based on the Lukka Bitcoin 

Reference Rate, which is comprised only of trade prices executed on Gemini and Bitstamp.

25 See supra note 24. 
12

executed during one partition will only have a limited effect on the overall 

reference rate;

o Use of a volume-weighted median calculation is outlier resistant by nature. For 

distributions that may have outliers or may be skewed, as could be the case in 

an attempt to manipulate, the median is significantly less sensitive to outliers 

than the mean. Additionally, volume-weighting serves to reduce higher counts 

of smaller trades that may be outliers and could otherwise impact a non-volume 

weighted median; 

o As described above, Kaiko’s methodology is designed to prevent outliers and 

minimize the impact of any one market deviating in price from the rest of the 

constituent markets. Particularly, to address any potential anomalies or 

manipulation at individual exchanges, the index provider implements measures

that identify and disregard spurious data and that may remove a constituent 

exchange or otherwise revise its methodology in light of, but not limited to, 

fraud, market manipulation, or significant loss of volume or liquidity on a 

constituent exchange;

o The data-sharing and ISAs in place between CDE and Kaiko and the underlying 

exchanges will assist CDE in monitoring for market manipulation and abuses, 

and in enforcing compliance with CDE rules;

o Each of the underlying component exchanges have a comprehensive set of rules 

or binding terms and conditions for members that prohibit members from 

engaging in fraudulent acts, market manipulation and abusive practices, and 

surveillance in place to monitor for any such abusive practices;

o As each constituent exchange is a registered MSB, all members of each 

exchange are subject to rigorous AML/KYC checks and procedures during the 

onboarding process; 

• Pursuant to Rule 409(c), Trading Privilege Holders must make available to the 

Exchange any information regarding their activities in a reference market of an index 

on which a CDE futures product is based, which would include the Product; and

• The Product is subject to Rule 530, which governs position limits. Position limits apply 

to all accounts for which a person directly or indirectly owns (more than 10% 

ownership) or controls the trading, and all positions held by persons acting pursuant to 

an agreement. As described above, the position limits for the Product are substantially 

the same as position limits imposed for similar products on other DCMs.

DCM Core Principle 4 (Prevention of Market Disruption) because CDE Rules prohibit 

participants from manipulating the market in, disrupting the orderly functioning of the market 

in, or creating a condition in which prices do not or will not reflect fair market values in the 

Product, and CDE enforces compliance with such CDE Rules. Further, the Amendment 

implements trading halt provisions applicable to the Product, which will halt trading in the

Product during a circuit breaker event (parameters of which are determined by the Exchange 

and will be made available on its website), and makes it clear in the CDE Rules that the 

Exchange may halt trading or otherwise modify the circuit breaker parameters in its discretion 

in the interests of preserving market integrity, which will contribute toward reducing the 

potential risk of price distortions and market disruptions in the Product;
13

DCM Core Principle 5 (Position Limits or Accountability), as described in detail above,

because the Product’s contract specification and the Amendment establish an appropriate 

initial position limit for the Product that will serve to reduce the potential for market 

manipulation in the Product;

DCM Core Principle 7 (Availability of General Information) because the contract 

specifications for the Product will be posted and maintained on CDE’s website;

DCM Core Principle 8 (Daily Publication of Trading Information) because in that 

volume, open interest, settlement prices, and other price information for the Product will be 

made available publicly on a daily basis on CDE’s website consistent with CFTC Regulation 

16.01;

DCM Core Principle 9 (Execution of Transactions) because CDE will make the Product 

available for trading on CDE’s trading system. This provides for a competitive, open, and 

efficient market and mechanism for executing transactions that protects the price discovery 

process of trading on CDE’s centralized market. Block trades in the Product must be submitted 

and reporting pursuant to the CDE block trading rules;

DCM Core Principle 10 (Trade Information) because CDE will maintain trade 

information for the Product as part of its audit trail and this information will be accessible to 

CDE Regulation for regulatory surveillance and enforcement purposes;

DCM Core Principle 11 (Financial Integrity of Transactions) because the Product will 

be cleared by CCD, which is registered with the Commission as a DCO and is subject to the 

provisions of the Act and CFTC regulations relating to DCOs;

DCM Core Principle 12 (Protection of Markets and Market Participants) because the 

CDE Rules include prohibitions against abusive practices, including abusive practices 

committed by a party acting as an agent for a participant, that will apply in relation to the 

Product, and promote fair and equitable trading in the Product;

DCM Core Principle 13 (Disciplinary Procedures) because CDE maintains disciplinary 

procedures and rules that authorize the Exchange to discipline market participants that commit 

CDE rule violations, including any rule violations relating to the Product; 

DCM Core Principle 14 (Dispute Resolution) because the CDE Rules provide a 

mechanism for market participants to arbitrate disputes that arise out of transactions executed 

on or subject to the rules of the Exchange, including transactions in the Product;

DCM Core Principle 18 (Recordkeeping) because CDE’s recordkeeping procedures, 

established pursuant to Commission Regulation 1.31, will apply with respect to Exchange 

records relating to the Product, including trade records and investigatory and disciplinary files;
14 

DCM Core Principle 19 (Antitrust Considerations) because the listing of the Product 

will promote competition with digital asset futures products that are offered for trading on 

other markets; and 

DCM Core Principle 20 (System Safeguards) because CDE maintains system 

safeguards controls and procedures for its operations and automated systems that will be 

utilized to facilitate trading in the Product.

Certification

CDE believes that the impact of the Product offering and the Amendment will be 

beneficial to the public and market participants. CDE is not aware of any substantive opposing 

views to the Amendment. CDE hereby certifies that the listing of the Product and the 

Amendment complies with the Act and the regulations thereunder. CDE further certifies that 

it has posted a notice of pending certification with the Commission and a copy of this 

submission on the Cboe Digital website (https://www.cboedigital.com/regulation/exchangenotices/) concurrent with the filing of this submission with the Commission.

Questions regarding this submission may be directed to Rebecca Tenuta at 

rtenuta@cboe.com or (312) 786-7570. 

Sincerely, 

/s/ Rebecca Tenuta

Rebecca Tenuta

Senior Counsel, Cboe Digital 
1

www.cboedigital.com © All Rights Reserved

EXHIBIT A

Contract Specifications

Physically-Settled Bitcoin Futures

Description A margin-based physically settled futures contract for bitcoin

Contract 

Symbol BTC

Contract Size 1 bitcoin, as defined by the Cboe Kaiko Bitcoin Rate (CKBR) Index

Price Quotation USD per 1 bitcoin

Minimum Price 

Increment

$5.00 per bitcoin ($5.00 per contract)

Block trades may be negotiated in $0.01 increments

Listed 

Contracts

Up to 3 weekly expirations, nearest 2 serial months and nearest 4 quarterly 

months

Settlement Physically-settled

Final settlement price is determined pursuant to Rule 906(c) and based upon the 

Cboe Kaiko Bitcoin Rate (CKBR) Index. The final settlement price is the CKBR 

rate published at 10:00 a.m. CT on the Last Trading Day. 

Trading Days 

and Hours

Sunday through Friday

5:00 p.m. CT (open on previous business day) through 4:00 p.m. CT (close on 

trade date), unless otherwise determined by the Exchange and published in a 

Notice to Participants.

Daily Closing

Time 4:00 p.m. CT

Last Trading 

Day/Time

Weekly - 10:00 a.m. CT Friday* of the expiry week 

Monthly - 10:00 a.m. CT Last Friday* of the contract month 

* Preceding business day if day falls on a non-business day

Block Trade 

Minimum 5 Contracts

Position Limit 8,500 Contracts

Large Trader 

Reporting 5 Contracts

Collateral 

Withheld

Collateral required on a margin-basis. Margin requirements 

are published daily on the Cboe Digital website at 

cboedigital.com.

Delivery

Pursuant to the Cboe Clear Digital Rulebook, an Eligible Delivery Member (EDM) 

must deposit all underlying assets required to make delivery immediately upon 

expiration. An EDM must deposit all funds required to take delivery no later 

than one hour following expiration. Delivery is made through the Clearinghouse 

to the EDM’s delivery account. Further information about physical delivery can

be found in Cboe Clear Digital Rule 410.
2

www.cboedigital.com © All Rights Reserved

Forks Support for forksin the underlying product will be evaluated in accordance with 

the Cboe Digital Fork Policy.
Exhibit B

Amendments to the Cboe Clear Digital Rulebook

(All deletions are struck-through and all additions are underlined) 

* * * * *

RULE 533. Position Limit, Position Accountability, Reportable Level, and 

Volume Threshold Level Table

The reportable levels for all Contracts are set forth in the Position Limit, Position Accountability, 

Reportable Level, and Volume Threshold Level Table below. For purposes of the Large Trader 

Report, Contracts shall be reported according to discrete Commodity Code. The reportable level 

is the net long position or the net short position for each discrete Commodity Code. Pursuant to 

Rule 909, concurrent long and short positions must be reported to the Exchange for both sides 

as open positions (i.e., net long positions or net short positions). Such other volume threshold 

reportable levels than those set forth in the Position Limit, Position Accountability, Reportable 

Level, and Volume Threshold Level Table may otherwise be designated by the Commission.

Position Limit, Position Accountability, Reportable Level, and Volume Threshold Level 

Table:

Contract Name Commodity 

Code

Reportable 

Futures Level 

for each 

discrete 

Commodity 

Code (Large 

Trader Report 

and Form 

102A)

Position 

Accountability 

for each 

discrete 

Commodity 

Code

Position Limit for 

each discrete 

Commodity Code

Volume Threshold 

Reportable Level for 

each discrete 

Commodity Code (Form 

102B)

Bitcoin Futures

(physically-settled)

BTC 25 contracts N/A 200,000 8,500 250 contracts

* * * * *

* * * * *

RULE 541. Trading Halts 

(a) The market for a Contract will enter into a halt state for a period of time designated by the Exchange, 

during Trading Hours for the Contract, if a circuit breaker is triggered: the price of a bid (offer) in the Contract 

is higher (lower) than a percentage designated by the Exchange as compared to the highest (lowest) bid 
(offer) observed during the lookback window as designated by the Exchange. The Exchange shall publish 

the circuit breaker parameters as designated by the Exchange on its website.

(b) The Exchange may, in its discretion, temporarily halt trading in a Contract or modify the circuit breaker 

parameters, including the time of a halt state, to preserve market integrity in a Contract market. Any action

taken in response to an Emergency is governed by Rule 212, including notification to the CFTC of any 

Emergency Rule in accordance with CFTC Regulations.

* * * * *

RULE 906. Settlement Prices

(a) The Exchange, in conjunction with the Clearing House, will determine the Settlement Price for 

Contracts. For each Contract, the Exchange shall publish a daily settlement price and information 

regarding volume, open interest and opening and closing ranges.

(b) Daily Settlement Price. Unless specified in the terms of a Contract, the daily settlement price for all 

Exchange Futures Contracts based on a Digital Currency Asset will be determined as follows:

(1) Based on the volume weighted average price of executed trades for the cContract during 

the last ten (10) minutes of trading on each trading day, where the closing period will be broken 

down into two (2) distinct five (5) minute periods for which the volume weighted average price 

will be calculated and the average of the two (2) value weighted average prices will be the daily 

settlement price;

(2) If no trades occur during the last ten (10) minutes of trading, the last trade in the Exchange’s 

spot market during the same period for the relevant underlying Digital Currency will be used 

and adjusted by the difference between the previous day spot closing price and the previous 

day futures closing price; or

(3) If no trade has occurred in the Exchange’s spot market during this period or in the event 

that the Exchange concludes that the settlement price determined in accordance with the 

foregoing does not fairly represent the market value of the period, the Exchange may determine 

an alternative settlement price. Such determination may be based upon, among other things, 

a third party or combination of third-party index or reference prices.

(c) Final Settlement Price. Unless specified in the terms of a Contract, the final settlement price for all 

Exchange Futures Contracts based on a Digital Asset will be determined based on the reference rate 

of a third-party index, as specified in the relevant Contract specifications, published at the time of 

expiration. If the Exchange concludes that the final settlement price determined in accordance with the 

foregoing does not fairly represent the market value, the Exchange may determine an alternative 

settlement price. Such determination may be based upon, among other things, a third party or 

combination of third-party index or reference prices.

(d) Notwithstanding the foregoing, the Clearing House may modify Settlement Prices in its discretion 

in accordance with Clearing House Rules.
* * * * *

RULE 1101. Bitcoin Futures

Reserved

(a) Physically-Settled Bitcoin Futures.

Description A margin-based physically settled futures contract for bitcoin

Contract 

Symbol BTC

Contract Size 1 bitcoin, as defined by the Cboe Kaiko Bitcoin Rate (CKBR) Index

Price 

Quotation USD per 1 bitcoin

Minimum

Price 

Increment

$5.00 per bitcoin ($5.00 per contract)

Block trades may be negotiated in 

$0.01 increments

Listed 

Contracts

Up to 3 weekly expirations, nearest 2 serial months and nearest 4 quarterly 

months

Settlement Physically-settled. 

Final settlement price is determined pursuant to Rule 906(c).

Trading Days 

and Hours

Sunday through Friday

5:00 p.m. (open on previous business day) through 4:00 p.m. (close on trade 

date), unless otherwise determined by the Exchange and published in a 

Notice to Participants.

Daily Closing

Time 4:00 p.m.

Last Trading 

Day/Time

Weekly - 10:00 a.m. Friday* of the expiry week 

Monthly - 10:00 a.m. Last Friday* of the contract month 

* Preceding business day if day falls on a non-business day

Block Trade 

Minimum 5 Contracts

Position Limit 8,500 Contracts

Large Trader 

Reporting 5 Contracts

Collateral 

Withheld

Collateral required on a margin-basis. Margin

requirements are published daily on the Cboe Digital 

website at cboedigital.com.

Delivery

Pursuant to the Cboe Clear Digital Rulebook, an Eligible Delivery Member (EDM) 

must deposit all underlying assets required to make delivery immediately upon 

expiration. An EDM must deposit all funds required to take delivery no later 

than one hour following expiration. Delivery is made through the Clearinghouse 

to the EDM’s delivery account. Further information about physical delivery can

be found in Cboe Clear Digital Rule 410.
Forks Support for forks in the underlying product will be evaluated in accordance with 

the Cboe Digital Fork Policy.

* * * * *

RULE 1103. Ether Bitcoin Futures[Reserved]

Description A fully funded physically settled futures contract for the 

Ether Bitcoin Pair

Contract Symbol ETBT

Contract Size 1 ETH

Price Quotation BTC equivalent of 1 ETH

Minimum Price Increment 0.00001 Bitcoin

Listed Contracts Up to 5 Daily expirations, 3 Weekly expirations, nearest 2 serial 

months and nearest 2 quarterly months.

Settlement Physical Delivery

Trading Hours Sunday 17:00 – Friday 16:00 (CT)

Daily Closing Time 16:00 (CT)

Last Trading Day/Time

Daily - 10:00 (CT) of the expiry day

Weekly - 10:00 (CT) Friday* of the expiry Week

Monthly - 10:00 (CT) Last Friday* of the contract month * Preceding business day if day falls on a non-business day

Position Limit 75,000

Large Trade Reporting 25 Contracts

Collateral Withheld Buyer: No. of Contracts * Contract Size * Trade Price 

Seller: No. of Contracts * Contract Size

Delivery

Pursuant to the Cboe Clear Digital rulebook, purchase price of 

the future and the underlying deliverable commodity are 

deposited with the Clearinghouse (in accordance with Cboe 

Clear Digital Rules 403 and 315) by the buyer and seller prior to 

the futures trade. Therefore, delivery is made through the 

Clearinghouse to the buyer’s account. Further information 

about delivery can be found in Cboe Clear Digital Rule 410.
Forks Any forks in the underlying blockchain for the digital asset will 

be evaluated in accordance with Exchange Rule 911.

* * * * *

CONTENT

INTRODUCTION 4

REVIEW CALENDAR 5

Scheduled Review and Rebalancing 5

Extraordinary Review 6

METHODOLOGY 7

Data Source 7

Exchange Selection Model 7

Publication Events 8

Rates Calculation 9

1. Step-by-step Methodology 9

2. Inputs 9

3. Volume Weighted Median 10

4. Fixing Price 10

5. Partitioning Scheme 11

6. Data Rounding 11

7. Blockchain Forks 11

8. Data Gaps 11

Missing Data 11

Delayed Data 11

Spurious Data 12

2
Version Publication date Comments

1 26/10/2023 Created

3
INTRODUCTION

This document describes the methodology of the Cboe Kaiko Digital Assets Rates -

(together, the “Cboe Kaiko Rates”). Designed to bring greater transparency to pricing,

the Cboe Kaiko Rates are solely based on executed trades from centralised

exchanges.

Calculation and dissemination: All Cboe Kaiko Rates are calculated hourly.

The list of all rates can be found here:

Rate Kaiko Symbol ISIN

Cboe Kaiko Bitcoin Rate Cboe-KAIKO_BTCUSD TBD

Cboe Kaiko Ether Rate Cboe-KAIKO_ETHUSD TBD

4
REVIEW CALENDAR

Scheduled Review and Rebalancing

Rebalancing is a scheduled, regular process designed to ensure that the Cboe Kaiko

Rates are composed of the most relevant price data feeds and to ensure the Cboe

Kaiko Rates continue to comply with the methodology detailed in this document,

including initial vetting, liquidity and optimization requirements (in particular please

refer to the Exchange Selection Model section).

All Cboe Kaiko Rates will follow the same quarterly rebalancing calendar (March,

June, September and December) with cut off and effective dates structuring the data

collection and processing periods followed by publication periods.

Event Date Description

Cut-off

Last day of the month preceding the

rebalancing

Data collection for composition

determination stops on that day.*

Underlying data

Second Friday of the rebalancing

month

The new exchange composition with

corresponding weights is available.

Effective

Monday after the third Friday of the

rebalancing month

The new exchange composition

becomes effective in the calculation of

the rates.

*For instance, if a 3-month Average Daily Traded Volume must be calculated, the covered period will start 3 months

before the cut-off date and end on the cut-off date (included).

5
Extraordinary Review

On the basis of its qualified and expert judgement, Kaiko, in consultation with Cb

and other relevant stakeholders, reserves the right to exclude or replace an exchange

selected during the Scheduled Review, or to suggest and consult on any

methodology change that Kaiko considers necessary to ensure the Cboe Kaiko Rates

continue to reflect the target underlying economic reality. Such a consultation cou

happen if, for example, an exchange has been found to experience an exclusion

action including but not limited to:

● Fraud

● Market manipulation

● Significant loss of volume or liquidi

In such cases, the Kaiko Index Steering Committee will publish a consultation

document, explaining its findings and any suggested methodology change. A cle

timetable for the consultation will be outlined, including the proposed notice period

that will be provided before the implementation of any change.

6
METHODOLOGY

Cboe Kaiko Rates emphasise data quality. Before any rate can be computed, each

eligible exchange is screened for both quantitative and qualitative aspects. Said

screenings compose a key element to ensure the reliability and authenticity of each

and every rate.

Data Source

The daily price levels are based on the historical tick-by-tick trade data provided by

Kaiko.

Kaiko is the leading source of cryptocurrency market data, providing businesses with

industrial-grade and regulatory-compliant data. Kaiko empowers market participants

with global connectivity to real-time and historical data feeds across the world's

leading centralized and decentralized cryptocurrency exchanges. Kaiko’s proprietary

products are built to empower financial institutions and cryptocurrency business

with solutions ranging from portfolio valuation to strategy backtesting, performance

reporting, charting, analysis, indices, pre-and post-trade.

Exchange Selection Model

Markets in crypto assets are by nature highly fragmented, with hundreds or even

thousands of exchanges spread over different geographical areas, each with their

own regulatory framework. Each crypto asset trading platform works as an

independent dark pool, and as such, official statistics and research data are rar

publicly available.

As a global digital asset market data provider, Kaiko covers more than one hundred

cryptocurrency exchanges. However, not all exchanges offer the same level of

standards in terms of legal and compliance frameworks, infrastructure security,

liquidity, data quality or even technology.

7
An asset-agnostic vetting is built on Kaiko Exchange Ranking parameters. The

Exchange Ranking assessment is carried out on a quarterly basis by the Kaiko team,

and approved by the Kaiko Exchange Ranking Steering Committee.

Criteria

Absent from any sanction list Yes

Has been operating for the past 5 Years

Located in stable and open country Yes

Regulated by an independent government body Yes

KYC/AML controls Strong

Trading Policies Significa

Offers reliable REST API & WebSocket data feeds Yes

Offers reliable live & historical trade data Yes

Provide cold storage for customers funds Yes

All exchanges fulfilling all criteria mentioned above constitute the Kaiko Vett

Exchanges List (KVEL) for the respective rates. Upon each quarterly review of the

Exchange Ranking, a new associated KVEL is created. Kaiko’s Exchange Ranking

history goes back to January 2022. For the purposes of index and rate performance

history older rebalancing periods will be associated with the January 2022 Exchange

Ranking Review. Subsequent exchange selections will rely on their respective

Exchange Ranking Review.

Additionally, the liquidity of each exchange in the relevant pairs is assessed to only

consider meaningful contributors, defined as at least 0.5% of the total observ

liquidity over the past 3 months in the relevant pair.

For the purpose of the Cboe Kaiko Rates computation, only market data coming from

the following members of the KVEL are considered: Cboe Digital, LMAX, itBit and

Bitstamp. In accordance with the Extraordinary Review section above, any material

change to the methodology would be subject to consultation with all relevant

stakeholders.

8
Publication Events

The Cboe Kaiko Rates are published on an hourly basis and use a fixed calculati

window:

Rate Publication Interval Calculation Window

Cboe Kaiko Bitcoin Rate Hourly fixings Fixed at 3600 secon

Cboe Kaiko Ether Rate Hourly fixings Fixed at 3600 secon

9
Rates Calculation

The aggregation methodology consists of splitting the calculation period considered

into equal size partitions and, for each of them, extracting the most representative

trade whose price will be used for the final rate calculatio

All trades in the relevant pair from the relevant exchanges are pooled together and

grouped into relevant time partitions. For each partition, the most representative

trade is defined as the volume median on

1. Step-by-step Methodology

● At fixing time, collect all executed trades in the calculation window (before t

fixing) on all selected exchange

● Merge all the executed trades from the different exchanges in the same dataset

sorted by prices in ascending order.

● Create K partitions of S size from the calculation window (eg. 1h calc. window

part

with 10 partitions of 6 min).

● Each partition is then subject to a Volume Weighted Median (outlier resistant by

nature). A detailed description of this aggregation method is provided below.

● A time weight is associated with each partition’s volume-weighted median (more

weights to the last partitions which are the most recent).

● Aggregation of those weighted prices (eg. 10 prices aggregated on 1h calc.

window) to obtain the fixing price for this publication even

2. Inputs

Symbol Name Description

t Event The timestamp at which the fixing price (FP) 

calculated.

S

wind

Calculation Window Size Size of the calculation period for which trades are

collected and aggregated.

S

part

Partition Size Size of each partition in the calculation window.

K Number of Partitions The number of partitions is an integer calculated as

S . wind/S

part

k Partition Number k partition.

th

I

k

Partition Trade Distribution List of trades included in partition k and ordered by

ascending price.

10
p

i

k Partition Trade Price i trade price in the partition (price-orderedth

k

th

distribution).

v

i

k Partition Trade Volume i trade volume in the partition (price-orderedth

k

th

distribution).

VWMk

Volume-Weighted Median Volume-weighted median of the

k partition.

th

FP

t

Fixing Price Fixing price (FP) at time t.

3. Volume Weighted Median

The volume-weighted median (VWM ) is calculated as the price ( ) of the trade k

p

j

k

j

th

where the j trade is the trade that lies at 50% of the cumulative volume for the th

partition k. VWM is calculated for each partition in :

k

S

wind

4. Fixing Price

The Fixing Price (FP) is calculated as a time weighted average price (TWAP) of all

the VWM of all the partitions. We implement a sensitivity calibration method on k

K

partitions to increase the weight of the most recent prices included in the calculation

window.

First, we apply a specific weighting function in order to obtain weights which a

inversely proportional to time t. It gives:

The weights are then normalised:

11
Thus, the fixing price is equal t

5. Partitioning Scheme

Each rate breaks down the window size into n partitions of equal size. Here is a

summary of all the window size / partitions number combinations:

Rate Number of partitions Calculation Window

Cboe Kaiko Bitcoin Rate 10 Fixed at 3600 seconds

Cboe Kaiko Ether Rate 10 Fixed at 3600 seconds

6. Data Rounding

All rates are calculated with all available decimals but published with two decimals.

7. Blockchain Forks

In the event of a fork of the blockchain, the ticker used on each Constituent

Exchange may be adjusted in order to represent the relevant instrument.

8. Data Gaps

Missing Data

At the time of the calculation (t), some relevant transactions may be missing for an

array of reasons. If no relevant transactions are recorded on the relevant partition,

the corresponding partition is excluded from the calculation and weights are

adjusted accordingly. If no relevant transactions are recorded in the entire

calculation window, the price is not published.

Delayed Data

If for any reason Kaiko was unable to retrieve relevant transactions at the Calculation

Time, the corresponding partition is excluded from the calculation.

12
Spurious Data

If for any reason any transactions were identified as potentially suspect within

partition, the most representative trade may be adjusted to disregard the spurious

data.

13