November 10, 2023

Via CFTC Portal Submissions

Mr. Christopher Kirkpatrick

Secretary of the Commission

Office of the Secretar

Commodity Futures Trading Commission

3 Lafayette Centre

1155 21

st Street, N.W.

Washington D.C. 20581

RE: Nadex Updates Position Limits for BTC and ETH Touch Bracket Contracts -

Submission Pursuant to Commission Regulation §40.6(a)

Dear Mr. Kirkpatrick:

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

§40.6(a) of the regulations promulgated by the Commodity Futures Trading Commission

(the “Commission”) under the Act, North American Derivatives Exchange, Inc. (“Nadex” or

the “Exchange”) d/b/a crypto.com | Derivatives North America, hereby submits to the

Commission its intent to adjust the position limits for its Bitcoin (BTC) and Ether (ETH)

Cryptocurrency Touch Bracket Variable Payout Contracts (the “Contracts”) from 10 to 250

lots for Direct Trading Members, and from 10,000 to 250,000 (on a per strike basis) for

market makers quoting markets in the Contracts.

On January 17, 2023, Nadex reduced its position limits on the Contracts from the initial

position limit level of 100 lots to 10 lots for Direct Trading Members, and from 100,000 to

10,000 (on a per strike basis) for market makers, in order to account for the initial launch

time period of the Contracts. Since the launch of the Contracts, over 680,000 BTC Touch

Bracket Variable Payout Contracts have traded and over 105,000 ETH Touch Bracket

Variable Payout Contracts have traded. Therefore, Nadex has determined that increasing

the position limits coincides with the aforementioned usage of the Contracts by Direct

Trading Members, as well as, the ability of market makers to overall capital usage and

exposure of the market makers. The increase in position limits will not impact the

Exchange’s compliance with the Core Principles, as noted below, and will not impact the

economic characteristics of the Contracts, as discussed in the CFTC Regulation 40.2(a)

Self-Certification of Product Filings for the Contracts dated October 28, 202

1 Therefore,

NADEX is increasing the position limits for following:

● Rule 12.24 Bitcoin Cryptocurrency “Touch Bracket” Variable Payout Contracts

1 See Self-Certification of Product: Nadex Adds Bitcoin and Ether Cryptocurrency “Touch Bracket” Variable

Payout Contracts – Submission Pursuant to Commission Regulation§40.2(a) dated October, 28, 2022 (the

“Filing”), which is incorporated by reference and is available at:

https://www.nadex.com/notices/nadex-self-certifies-cryptocurrency-products-oct28/. Terms not defined herein

shall have the meaning in the Filing or the Exchange Rules.

Crypto.com | Derivatives North America

200 West Jackson Blvd., Suite 1400

Chicago, IL 60606
● Rule 12.25 Ether Cryptocurrency “Touch Bracket” Variable Payout Contracts

See Appendix A for an excerpt of the Rulebook depicting the position limits for each of the

above-listed contracts.

Analysis of Nadex Rules 12.24 and 12.25 - Compliance With Core Principles

DCM Core Principles

Nadex has identified the following Designated Contract Market (“DCM”) Core Principle 

potentially being impacted by the position limits discussed herein: Core Principle 2

(Compliance with Rules); Core Principle 3 (Contracts Not Readily Subject to Manipulation);

Core Principle 4 (Prevention of Market Disruption); Core Principle 5 (Position Limits or

Position Accountability); Core Principle 7 (Availability of General Information).

Core Principle 2 (Compliance with Rules)

Core Principle 2 requires the DCM to have the capacity to detect, investigate, and apply

appropriate sanctions to any person that violates any rule of the contract market. The

Exchange has a dedicated Compliance/Regulatory staff that monitors the markets,

investigates potential rule violations, and imposes sanctions against individuals who have

been determined to have violated the Rules. The Exchange monitors for position limits

and has an automated trade surveillance system, Scila, which is capable of detecting

potential trade practice violations, and also conducts real-time market monitoring of all

trading activity in all Contracts, at all hours the Exchange is open. The Exchange is able to

set the parameters by which the system detects potential issues. Chapter 9 of the

Exchange Rulebook sets forth the Exchange’s authority to investigate and sanction

Members for activity that violates the Exchange Rules. The Exchange Rule 2.10 grants the

Exchange jurisdiction over any Person initiating or executing a transaction on or subject to

the Rules of the Exchange, either directly or through an intermediary, and any Person for

whose benefit such transaction has been initiated or executed. The Exchange

jurisdiction continues notwithstanding the termination of the Person’s Exchange

Membership. The Exchange Rule 3.3 requires all Trading Members and Authorized

Traders to comply with the Exchange Rules and to cooperate with the Exchange promptly

and fully in any investigation, call for information, inquiry, audit, examination or

proceeding. Such cooperation may involve a request for the Member’s or Authorized

Trader’s activity in the relevant Underlying market.

The Exchange certifies that its surveillance program addresses the requirements of Co

Principle 2.

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Core Principle 3 (Contracts Not Readily Susceptible to Manipulation and Core Principle 4

Prevention of Market Disruption)

Core Principles 3 and 4 require the DCM to list only contracts that are not readily

susceptible to manipulation and to prevent market disruption. The Exchange selected the

Underlying cryptocurrency commodity markets upon which to base its Contracts in large

part due to their active markets in terms of volume and liquidity, and their popularity

among consumers, institutional investors, and other financial professionals. Moreove

the Exchange Calculation Method significantly reduces the potential for manipulation 

the Exchange Indicative Index by removing a percentage of the upper and lower

Underlying bid/ask midpoint prices from the data set of the “ICE Cryptocurrency Data”

feed (“ICE Crypto Data”'), distributed by ICE Data® Connectivity and Feeds, Inc. (“IDCF”), as

well as data from Lukka Inc. (the Lukka Data Feed (“LDF”)), leading up to Expiration of the

Exchange Contracts, with the remaining prices averaged. The ICE Crypto Data and LDF

consist of numerous data points from numerous trading venues, which can be customized

by the Exchange. Accordingly, an individual trading the Contracts would not have

knowledge of the specific trading venue(s) from which the final set of ICE Crypto Data

LDF will be used to calculate the Expiration Value, further preventing the potential for

manipulation of the Contracts’ settlement by trading in the Underlying markets.

The Contracts will have a position limit of 250 lots for non-market maker Members, which

in combination with the composition of the ICE Crypto Data and LDF and the Exchange

Calculation Method would make a manipulation attempt essentially cost-prohibitive.

The Exchange Calculation Method, which comprises the Exchange Indicative Index, is

calculated on a second-by-second basis and works in conjunction with the previous

components to further mitigate any risk of potential manipulation of the Underlying

market for a positive result in the Underlying market. The Exchange Calculation Method

for the cryptocurrency commodity is constructed to use bid/ask midpoint prices on the

constituent exchanges. Using the Exchange’s method, all bid/ask midpoint prices

occurring in the Underlying market as reported in the ICE Cryptocurrency Data and LDF

within a 60-second window. The highest 20% and lowest 20% of bid/ask midpoint prices

are removed from the data set, and the remaining data set is averaged, resulting in the

Indicative Index Value and likewise, Expiration Value. In the event 25 bid/ask midpoint

prices are not available within any particular 60 second window, the window may be

extended until 25 prices are collected (again outliers are removed and the remaining data

set averaged). Analysis of historical market data indicates the event of this occurring

would be rare. Under the Exchange Calculation Method, even if a participant was able to

absorb all liquidity across multiple exchanges to create off-market bid/ask midpoint

prices, those prices would undoubtedly fall into the high/low 20% of the calculation and be

discarded from the Indicative Index and Expiration Value calculation, thereby negating any

nefarious activity in which a participant may have engaged.

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The Exchange has dedicated staff to survey the market and uses the Scila surveillance

system to assist with market monitoring at all times the Contracts will be listed.

Additionally, the Exchange will monitor the ICE Crypto Data and LDF feeds for anomalies

and disproportionate moves in the prices making up the Expiration Value. The Exchange

will be able to obtain information from the ICE Crypto Data and LDF to assist in the

Exchange’s market surveillance, such as, any relevant trade price, bid and ask prices,

activity date and time, venue at which any relevant bid/ask occurred, size, volume, daily

high and low, and a number of other data points. IDCF and LDF have agreed that upon the

Exchange’s request arising as the result of a regulatory investigation or related market

data inquiry, it will share with the Exchange additional information, to the extent that it is

reasonably practicable, and does not violate applicable laws, regulations and/or any of

IDCF’s, or LDF’s contractual obligations.

The Exchange trading system has a cap-check feature that ensures a trader has suffici

funds in their account to fully collateralize their Order if executed before the Order is

accepted by the Exchange. The Exchange also has the ability to block new Orders and/or

cancel working Orders if necessary to prevent market disruption.

Therefore, the Exchange has determined that the Contracts will not be readily susceptible

to manipulation and the protections the Exchange has in place will minimize disruption in

the Contract markets.

Core Principle 5 (Position Limits or Accountability)

Core Principle 5 requires the DCM set position limits or position accountability to reduce

the potential threat of market manipulation or congestion. Nadex increased its position

limits to align with the levels its Direct Trading Members will trade in the relevant

contracts, and to prevent a reduction in overall liquidity in the event its Direct Trading

Members should approach the current levels, forcing the market makers to reduce their

own exposure by dropping out of the markets. The Exchange has set the position limit for

Trading Members at 250 Contracts, thereby reducing the motivation for an individual to

manipulate the Underlying market in order to affect the Exchange settlement, explained in

detail above. Contracted Market Makers will not be subject to the 250 Contract position

limit in order to provide sufficient liquidity to the market. Market Makers will instead

subject to an Alternative Position Limit of 400 times the 250 lot limit (thus, 250,000) for

non-Market Maker Trading Members. Additionally, such Alternative Position Limits shall

apply not to the entire Class of Touch Bracket Contracts, but to each Touch Bracket

Contract in that Class (i.e., per strike). A Market Maker taking advantage of the Alternative

Position Limits must, within 1 business day following a request by the Exchange’s

Compliance Department, provide the Exchange Compliance Department with a trade

register detailing all trading activity in any account owned or controlled by the Market

Maker in the relevant Underlying market during the 15 minutes immediately before and

4
after any Expiration time identified by the Exchange’s Compliance Department in t

request.

Therefore, the position limits will not negatively impact Nadex’s ability to comply with this

Core Principle.

Core Principle 7 (Availability of General Information)

Core Principle 7 (Availability of General Information), implemented by Regulation 38.400,

requires the DCM make available to the public accurate information concerning the terms

and conditions of the contracts of the contract market. Nadex currently makes its

Rulebook available to the public on its website and will continue to do so following the

effective date of this submission. The Rulebook contains the contract specifications f

all contracts, including each contract’s position limits which will be updated and

republished on the Nadex website. Accordingly, these position limits will not negatively

affect Nadex’s ability to comply with this Core Principle.

DCO Core Principles

Nadex has not identified any Derivatives Clearing Organization (“DCO”) Core Principles 

potentially being impacted by the position limits discussed herein.

* * * * *

Nadex hereby certifies that the confirmations contained herein comply with the Act

amended, and the Commission Regulations adopted thereunder. No substantive

opposing views were expressed to Nadex with respect to any of these actions.

Nadex hereby certifies that notice of this confirmation was posted on its website at

time of this filing. In accordance with the 10-day review period set forth in Commissi

Regulation 40.6(a)(3), this confirmation will be effective as of November 27, 202

Should you have any questions regarding the above, please do not hesitate to contact me

by telephone at (312) 884-0161 or by email at kevin.dan@nadex.com.

Sincerely,

/s/

Kevin J. Dan

Chief Compliance Offi

Chief Regulatory Offi

5
APPENDIX A

(Any deletions are stricken out while the amendments and/or additions are underlined.)

RULE 12.24 BITCOIN CRYPTOCURRENCY “TOUCH BRACKET” VARIABLE PAYOUT

CONTRACTS

(a) SCOPE – These Rules shall apply to the Class of Contracts referred to as the

Bitcoin Cryptocurrency (“Bitcoin”) Touch Bracket Variable Payout Contracts, referred to

as a ‘Touch Bracket”, issued by Nadex.

(b) UNDERLYING – The Underlying for this Class of Contracts is the spot bitcoin

cryptocurrency commodity bid/ask midpoint prices as reported by Lukka, Inc. and ICE

®

Cryptocurrency Data aggregated by Blockstream® Corporation and distributed by ICE

Data

® Connectivity and Feeds, Inc., herein referred to as “U-BIT”, quoted in US dollars.

(c) SOURCE AGENCY – The Source Agency is Nadex.

(d) TYPE – The Type of Contract is a Variable Payout Contract.

(e) PAYOUT CRITERION – The Payout Criterion for each Contract will be set by Nadex

at the time the Variable Payout Contracts are initially issued. For the Bitcoin Touch

Brackets, the Payout Criteria for the Contracts will be set as follows:

(i) WEEKLY BITCOIN TOUCH BRACKET VARIABLE PAYOUT CONTRACTS,

Expiration is the earlier of (a) 4:15PM ET on the Last Trade Day of the contract

listing, or (b) when the Bitcoin Index Value is equal to or greater than the Ceiling, or

equal to or less than the Floor. Nadex shall list a set of four (4) Touch Bracket

Variable Payout Contracts, each referred to as a ‘Touch Bracket’, that open at 11:00

PM ET on the first Trade Day of the week, with overlapping ranges, which confo

to the Payout Criteria listed below.

CONTRACT 1: The Ceiling shall be X + 400; The Floor shall be X – 100.

CONTRACT 2: The Ceiling shall be X + 300; The Floor shall be X – 200.

CONTRACT 3: The Ceiling shall be X + 200; The Floor shall be X – 300.

CONTRACT 4: The Ceiling shall be X + 100; The Floor shall be X – 400.

DOLLAR MULTIPLIER – The Dollar Multiplier shall be 1.

In each case, “X” equals the last U-BIT value, as reported by the Source

Agency, rounded to the nearest 1.

(ii) Upon the early Expiration of a Touch Bracket, Nadex may list a new Touch

Bracket with a Ceiling of X + 400 (or 100) and a Floor of X – 100 (or 400) where X

6
equals the Ceiling (or Floor) of the Touch Bracket that expired early. The newly

listed Touch Bracket will have the same Last Trade Day as originally established

for the expired Touch Bracket and the same Dollar Multiplier as the expired Touch

Bracket.

(f) MINIMUM TICK –The Minimum Tick size for the Bitcoin Touch Bracket Variable

Payout Contracts shall be 1.

(g) POSITION LIMIT –The Position Limit for the Bitcoin Touch Bracket Variable

Payout Contracts shall be 10 250 Contracts.

(h) MARKET MAKER ALTERNATIVE POSITION LIMIT – The Position Limit for the

Bitcoin Touch Bracket Variable Payout Contracts for contracted Market Makers shall be

10,000 250,000 Contracts per strike level.

(i) LAST TRADING DATE – The Last Trading Date in a Series is the same date as the

Settlement Date.

(j) SETTLEMENT DATE – The Settlement Date of the Contract shall be the same date

as the Expiration Date.

(k) EXPIRATION DATE – The Expiration Date of the Contract shall be the date on

which the Bitcoin Touch Bracket Expiration Value is released by the Source Agency.

(l) SETTLEMENT VALUE – The Settlement Value is the amount paid to the holder of

either a Short or Long Variable Payout Contract on Settlement Date. The Settlement

Value of a Variable Payout Contract is determined as described in the definition f

Long and Short Variable Payout Contracts.

(m) BITCOIN INDEX VALUE – The Source Agency shall calculate and produce a

Bitcoin Index Value once each second throughout the life of the Bitcoin Touch Bracket

Contracts. That is, each second the Source Agency will calculate a Bitcoin Index Value

by taking by taking U-BIT midpoints between the bid/ask spread occurring in the sixty

(60) seconds leading up to the Calculation Time, provided at least twenty-five (2

midpoints between the bid/ask spread are captured during the sixty (60) second period,

removing the highest twenty (20) percent of U-BIT trade prices and the lowest twenty

(20) percent of U-BIT midpoints between the bid/ask spread from the data set,

(n) EXPIRATION VALUE – The Expiration Value is the Bitcoin Index Value released by

the Source Agency at Expiration on the Expiration Date.

(o) CONTINGENCIES – If no level is actually announced on the Expiration Date due to

a delay, postponement or otherwise in such release announcement by the Source

Agency, the Settlement Date will be delayed until the Underlying number is released for

that Series.

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RULE 12. 25 ETHER CRYPTOCURRENCY “TOUCH BRACKET” VARIABLE PAYOUT

CONTRACTS

(a) SCOPE – These Rules shall apply to the Class of Contracts referred to as the Ether

Cryptocurrency (“Ether”) Touch Bracket Variable Payout Contracts, referred to as a

‘Touch Bracket”, issued by Nadex.

(b) UNDERLYING – The Underlying for this Class of Contracts is the spot Ether

cryptocurrency commodity bid/ask midpoint prices reported by Lukka, Inc. and ICE

®

Cryptocurrency Data, aggregated by Blockstream® Corporation and distributed by ICE

Data

® Connectivity and Feeds, Inc., herein referred to as “U-ETH”, quoted in US dollars.

(c) SOURCE AGENCY – The Source Agency is Nadex.

(d) TYPE – The Type of Contract is a Variable Payout Contract.

(e) PAYOUT CRITERION – The Payout Criterion for each Contract will be set by Nadex at

the time the Variable Payout Contracts are initially issued. For the Ether Touch Brackets,

the Payout Criteria for the Contracts will be set as follows:

(i) WEEKLY ETHER TOUCH BRACKET VARIABLE PAYOUT CONTRACTS, Expiration

is the earlier of (a) 4:15PM ET on the Last Trade Day of the Contract listing, or (b)

when the Ether Index Value is equal to or greater than the Ceiling, or equal to or

less than the Floor. Nadex shall list a set of four (4) Touch Bracket Variable Payout

Contracts, each referred to as a ‘Touch Bracket’, that open at 11:00 PM ET on the

first Trade Day of the week, with overlapping ranges, which conform to the Payo

Criteria listed below.

CONTRACT 1: The Ceiling shall be X + 80; The Floor shall be X - 20.

CONTRACT 2: The Ceiling shall be X + 60; The Floor shall be X – 40.

CONTRACT 3: The Ceiling shall be X + 40; The Floor shall be X - 60.

CONTRACT 4: The Ceiling shall be X + 20; The Floor shall be X – 80.

DOLLAR MULTIPLIER – The Dollar Multiplier shall be 2.50.

In each case, “X” equals the last U-ETH value, as reported by the Source Agency,

rounded to the nearest 1.

(ii) Upon the early Expiration of a Touch Bracket, Nadex may list a new Touch

Bracket with a Ceiling of X + 80 (or 20) and a Floor of X – 20 (or 80) where X

equals the Ceiling (or Floor) of the Touch Bracket that expired early. The newly

listed Touch Bracket will have the same Last Trade Day as originally established

8
for the expired Touch Bracket and the same Dollar Multiplier as the expired Touch

Bracket.

(f) MINIMUM TICK –The Minimum Tick size for the Ether Touch Bracket Variable

Payout Contracts shall be 1.

(g) POSITION LIMIT –The Position Limit for the Ether Touch Bracket Variable Payout

Contracts shall be 10 250 Contracts.

(h) MARKET MAKER ALTERNATIVE POSITION LIMIT – The Position Limit for the Ether

Touch Bracket Variable Payout Contracts for contracted Market Makers shall be 10,000

250,000 Contracts per strike level

(i) LAST TRADING DATE – The Last Trading Date in a Series is the same date as the

Settlement Date.

(j) SETTLEMENT DATE – The Settlement Date of the Contract shall be the same date as

the Expiration Date.

(k) EXPIRATION DATE – The Expiration Date of the Contract shall be the date on which the

Ether Touch Bracket Expiration Value is released by the Source Agency.

(l) SETTLEMENT VALUE – The Settlement Value is the amount paid to the holder of

either a Short or Long Variable Payout Contract on Settlement Date. The Settlement

Value of a Variable Payout Contract is determined as described in the definition f

Long and Short Variable Payout Contracts.

(m) ETHER INDEX VALUE – The Source Agency shall calculate and produce a Ether

Index Value once each second throughout the life of the Ether Touch Bracket Contracts.

That is, each second the Source Agency will calculate a Ether Index Value by taking by

taking all U-ETH midpoints between the bid/ask spread occurring in the sixty (60)

seconds leading up to the Calculation Time, provided at least twenty-five (25) midpoin

between the bid/ask spread are captured during the sixty (60) second period, removing

the highest twenty (20) percent of U-ETH midpoints between the bid/ask spread and the

lowest twenty (20) percent of U-ETH midpoints between the bid/ask spread from the

data set

41

, and using the remaining U-ETH midpoints between the bid/ask spread to

calculate the Ether Index Value for that second. The calculation used is a simple

average of the remaining U-ETH midpoints between the bid/ask spread in the data set,

rounded to one decimal point past the precision of the Underlying market. In the event

the time it takes to collect at least twenty-five (25) U-ETH midpoints between t

bid/ask spread exceeds the sixty (60) second period, the Ether Index Value will be

calculated by the Source Agency by taking the last twenty-five (25) U-ETH midpoin

between the bid/ask spread just prior to the Calculation Time, removing the highest fi

(5) U-ETH midpoints between the bid/ask spread and the lowest five (5) U-E

midpoints between the bid/ask spread, and using the remaining fifteen (15) U-E

midpoints between the bid/ask spread to calculate the Ether Index Value. The

9
calculation used is a simple average of all fifteen (15) U-ETH midpoints between t

bid/ask spread, rounded to one decimal point past the precision of the Underlying

market.

(n) EXPIRATION VALUE – The Expiration Value is the Ether Index Value released by the

Source Agency at Expiration on the Expiration Date.

(o) CONTINGENCIES – If no level is actually announced on the Expiration Date due to a

delay, postponement or otherwise in such release announcement by the Source Agency,

the Settlement Date will be delayed until the Underlying number is released for that

Series.

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