I support the Commission’s approval of the application of Bitnomial Clearinghouse LLC (Bitnomial or Clearinghouse) for registration as a derivatives clearing organization (DCO).  Bitnomial submitted its application for registration as a DCO in April 2022.[1]  The Commission’s Regulations state that the Commission will review a DCO application within 180 days of the filing of the application.[2]  Following the expiration of the initial 180-day deadline in October 2022, Commission staff and Bitnomial agreed to extend the consideration period through June 2023.  The Commission has a regulatory obligation to provide Bitnomial, like any other applicant, with a determination, and I support the Commission doing so today.  I take very seriously the obligation to faithfully and dispassionately follow the law, and to treat all of our registrants and applicants fairly and equally.  Any departure from this responsibility would be an abdication of Commission duty.

Bitnomial has demonstrated compliance with each of the Core Principles applicable to DCOs set forth in Section 5b of the CEA and with the regulations implementing the Core Principles set forth in Part 39.  This demonstration of compliance is what the regulations require for registration.  In light of concerns regarding conflicts of interest and vertical integration, Bitnomial adopted the following: (1) rules that specifically address potential conflicts of interest associated with having an Futures Commission Merchant (FCM) affiliate as a clearing member; and (2) a separate, stand-alone policy that addresses potential affiliate conflicts.  Bitnomial also voluntarily agreed to publicly disclose its affiliate relationships, including the affiliated FCM.  The disclosure will cover all of the affiliated entities that are owned by Bitnomial, Inc., including the Exchange, the Clearinghouse, and the affiliated FCM, and would fully describe the relationships each entity has with the others.  The disclosure will be posted on Bitnomial’s website, and separately provided to clearing members, and customers of the affiliated FCM.  These additional measures, which are not required by the CEA, its implementing regulations, or the Core Principles, were voluntarily implemented by Bitnomial in response to issues identified in a request for comment issued by several CFTC operating divisions to better inform the Commission of issues that may arise because of affiliations of CFTC-registered entities with market participants.[3]

I must also note that vertically integrated DCOs are not novel structures for the Commission, nor are they in any way designed specifically for a certain asset class.[4]  Other DCOs have received Commission approval and been granted registration without having to address affiliate conflicts, and any suggestion that a vertically integrated DCO is devised for trading digital asset contracts is inaccurate. Like other registered DCOs, Bitnomial uses a traditional intermediated clearing model that will involve multiple clearing members currently active on the Exchange as FCMs.  In other words, Bitnomial’s application did not present unfamiliar issues.  Currently, the Commission does not have a requirement for addressing affiliate conflicts in its regulations.  That said, I initiated internal discussions regarding comments submitted in response to the June 2023 request for comment.  The Commission should not hold any single applicant to a higher standard than its existing registrants, nor should it require compliance with rules that have not yet been proposed or approved.  The Commission must treat market participants fairly.  And above all else, the Commission must comply with its regulations.  Although the additional measures implemented by Bitnomial were not required, I am satisfied with the extra steps they have taken.

Thank you to the staff of division of Clearing and Risk, the Office of the General Counsel, and the Office of Chief Economist for their work on this application.