CFTC Grants Reporting Relief for Fully Collateralized Digital Asset Swaps
Commentary by Gage Raju-Salicki
The CFTC’s Divisions of Market Oversight and Clearing and Risk ("DCR") granted a no-action request by a designated contract market and derivatives clearing organization on swap data reporting and recordkeeping requirements for certain fully collateralized binary and bounded swaps.
The requesting firm argued that, while the fully collateralized binary and bounded swaps at issue constitute swaps under the Commodity Exchange Act, they possess characteristics traditionally associated with exchange-listed products. They highlight that these characteristics include fungibility, standardization, and execution on a central limit order book—that distinguish them from complex, bilateral swaps. The firm emphasized that the contracts are "fully collateralized," meaning the clearinghouse holds sufficient funds at all times to cover the maximum possible loss for a counterparty.
In the no-action letter, the Divisions acknowledged that the reporting requirements under Parts 43 ("Real-Time Public Reporting") and 45 ("Swap Data Recordkeeping and Reporting Requirements") of the CFTC regulations are less applicable to these standardized, fully collateralized products. Consequently, the Divisions decided to not recommend enforcement action if the firm and its participants do not comply with real-time reporting and swap data recordkeeping obligations under Parts 43 and 45, as well as Regulations 38.8(b) ("Listing of swaps on a designated contract market"), 38.10 ("Reporting of swaps traded on a designated contract market"), 38.951 ("Boards of trade operating both a designated contract market and a swap execution facility"), and 39.20(b)(2) ("Recordkeeping").
The Divisions conditioned the relief as follows: (i) the contracts must be fully collateralized and cleared through the firm's clearinghouse; (ii) the firm must publish specific time and sales data—including trade timestamp, contract, quantity, and price—on its website promptly after execution; (iii) the firm must continue to provide the CFTC with transactional information under Regulation 16.02 ("Daily trade and supporting data reports"); and (iv) the firm must maintain all other required records and make them available for inspection by the Commission.
Commentary
The CFTC staff issued no-action relief for certain fully collateralized binary and bounded swaps that trade and clear like exchange contracts. While the no-action letter is in effect, these products do not have to meet real-time public reporting or swap data recordkeeping under Parts 43 and 45, or certain related Reg. 38 and 39 rules. The relief only applies if the contracts are fully collateralized and cleared, the venue promptly posts time-and-sales data on its website, the firm continues daily reports under Reg. 16.02, and all other records are kept and available to the CFTC.
Practically, venues can structure digital-asset event contracts to meet these conditions and avoid duplicative SDR processes, but they must build and maintain a reliable public transparency page and data feeds. Firms should revise product approvals, rulebooks, and participant agreements to reflect this alternative reporting approach and define "fully collateralized," with controls to monitor maximum-loss coverage at the DCO at all times. However, this is staff no-action relief, so it is important to keep in mind that it is fact-specific and can ultimately be withdrawn.