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18-032.020

November 8, 2018

VIA CFTC PORTAL

Commodity Futures Trading Commission

Attention: Chris Kirkpatrick, Secretary

Three Lafayette Centre

1155 21st Street, NW

Washington, DC 20581

Re: CFTC Regulation 40.2(a) Certification: Notification of Product Offered for 

Trading on Nodal Exchange, LLC – California Carbon Allowance Specific Vintage 2021 

Option

Dear Mr. Kirkpatrick:

Nodal Exchange, LLC (“Nodal Exchange” or “Exchange”) is notifying the Commodity Futures 

Trading Commission (“CFTC” or “Commission”) that pursuant to Commission Regulation 

40.2(a), the Exchange is self-certifying the listing of Two hundred fifty-four (254) new 

environmental futures and options contracts for trading on Nodal Exchange beginning on 

November 16, 2018. The contract specifications describing these new Exchange futures and 

options contracts are attached to this letter as Exhibit A, to be added to the Nodal Exchange 

Rulebook Appendix A – Contract Specifications. The deliverable supply analysis has been 

segregated as Exhibit B, for which confidential treatment is requested. The reporting levels, 

accountability levels, and position limits for these contracts is attached to this letter as 

Exhibit C, which will be added to the Nodal Exchange Rulebook Appendix C - Reporting 

Levels, Accountability Levels and Position Limits.

Exchange management has assessed the Exchange’s contracts’ compliance with applicable 

provisions of the Commodity Exchange Act (“Act”), including the Commissions Regulations 

thereunder and the Core Principles. Regulatory compliance of Nodal Exchange’s futures and 

options contracts is mostly addressed in the Nodal Exchange Rulebook, concisely explained 

as follows:

Core Principle 2 - Compliance with the Rules: Trading in the Exchange’s contracts will be 

subject to the Nodal Exchange Rulebook in Section IV, describing trading procedures, and 

Section VI, which establishes trading codes of conduct, sound trading practices, and 

identifies prohibited trading behavior and abuses. In addition, trading behavior and activity 

will be subject to extensive monitoring and surveillance by the Exchange’s Division of Market 

Administration and Surveillance. The Exchange’s Compliance Department has the authority 
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to address disciplinary matters through investigation and enforcement procedures in 

accordance with Section VII of the Exchange Rulebook.

Core Principle 3 - Contracts not Readily Susceptible to Manipulation: The supply of 

environmental products is managed in accordance with relevant state law. A description of 

the underlying cash markets and deliverable supply analysis for the Exchange’s new 

contracts is provided in attached Exhibit B, which demonstrates compliance that the 

Exchange’s new contracts are not readily susceptible to manipulation.

Core Principle 4 - Prevention of Market Disruption: Trading in the Exchange’s contracts will 

be subject to the Nodal Exchange Rulebook Section VI, which prohibits disruptive trading 

behavior and manipulation, subject to monitoring and surveillance by the Exchange’s 

Division of Market Administration and Surveillance.

Core Principle 5 - Position Limitations or Accountability: The Exchange is proposing position 

accountability levels for the new contracts because the underlying cash market is regulated

in accordance with state laws and not readily susceptible to manipulation. The spot-month 

speculative position limits for the Exchange’s contracts are set at less than 25% of the 

deliverable supply in the respective underlying market. The new contract reporting levels, 

accountability levels and position limits are provided in attached Exhibit C, to be added to 

the Nodal Exchange Rulebook Appendix C – Reporting Levels, Position Accountability Levels 

and Position Limits.

Core Principle 7 - Availability of General Information: The Exchange will post general 

information, including the contract specifications for the new contracts, Exchange fees, and 

the Nodal Exchange Rulebook, on the Exchange’s website: www.nodalexchange.com.

Core Principle 8 - Daily publication of Trading Information: The Exchange will publish daily 

information on settlement prices, volume, open interest and opening and closing ranges for 

the Exchange’s actively traded contracts on its website.

Core Principle 9 - Execution of Transactions: The Exchange’s new contracts will be available 

on the Exchange’s electronic trading screen that is a central limit order book (“CLOB”). The 

CLOB provides the market with the ability to execute the Exchange’s contracts from the 

interaction of multiple bids and multiple offers within a predetermined, nondiscretionary 

automated trade matching and execution algorithm. 

Core Principle 10 - Trade Information: The CLOB will maintain all information with respect 

to each order and each consummated trade, as well as all other information relating to the 

trade environment that determines the matching and clearing of trades. As such, any order 

submitted to the CLOB can be tracked from the time it is entered into the system until the 

time that it is matched, canceled or otherwise removed.
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18-032.020

Core Principle 11 - Financial Integrity of Transactions: The Exchange has entered into a 

clearing arrangement with Nodal Clear, a derivatives clearing organization subject to Part 

39 of the Commission Regulations. The new contracts executed on the CLOB or as a block 

trade will be subject to the Exchange Rulebook provisions for submission to Nodal Clear for 

clearing as described in Section V. 

Core Principle 12 - Protection of Markets and Market Participants: Section VI of the Nodal 

Exchange Rulebook protects the market and market participants from abusive, disruptive, 

fraudulent, noncompetitive and unfair conduct and trade practices. The new contracts are 

subject to these rules that apply to all transactions in the Exchange’s contracts.

Core Principle 13 - Disciplinary Procedures: Section VII of the Nodal Exchange Rulebook

describes the disciplinary procedures of the Exchange that authorize the Exchange to 

discipline, suspend, or expel anyone on the Exchange that violates these rules. 

Core Principle 14 - Dispute Resolution: Section VIII of the Nodal Exchange Rulebook

establishes rules concerning alternative dispute resolution, which provide for the resolution 

of disputes between or among Exchange users through the NFA arbitration program. Under 

Section VIII, arbitration is available for all disputes, controversies or claims among all 

Exchange users relating to Exchange activities. 

Pursuant to Section 5c(c) of the Act and the Commission’s Regulation 40.2(a), the Exchange 

certifies that the Exchange’s new futures contracts to be listed comply with the Act and the 

Commission’s Regulations thereunder.

Nodal Exchange certifies that this submission has been concurrently posted on the Nodal 

Exchange website at www.nodalexchange.com.
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18-032.020

If you have any question or need additional information regarding the above, please 

contact the undersigned at 703-962-9853 or markotic@nodalexchange.com or Anita 

Herrera, Chief Regulatory Officer & General Counsel at 703-962-9835 or 

Herrera@nodalexchange.com.

Sincerely,

/s/ Max Markotic

Senior Compliance Manager

Attachments:

Exhibit A: November 16, 2018 Addition to Nodal Exchange Appendix A - Contract 

Specifications

Confidential Exhibit B: Deliverable Supply Analysis (Confidential Treatment 

Requested)

Exhibit C: November 16, 2018 Addition to Nodal Exchange Appendix C - Reporting 

Levels, Accountability Levels and Position Limits