Risk Disclosures
General
Digital Currency
Galaxy Digital Asset Derivatives Risk Disclosure Statement
THIS BRIEF STATEMENT COVERS SOME, BUT NOT ALL OF THE RISKS OF TRANSACTING IN DERIVATIVES CONTRACTS RELATING TO DIGITAL ASSETS WITH GALAXY DIGITAL. BY ENTERING INTO SUCH TRANSACTIONS WITH GALAXY DIGITAL, YOU REPRESENT AND WARRANT THAT YOU HAVE EVALUATED THE MERITS AND RISKS OF TRADING SUCH CONTRACTS WITH GALAXY DIGITAL AND HAVE DETERMINED THAT SUCH CONTRACTS ARE APPROPRIATE FOR YOU AND THAT YOU ARE CAPABLE OF ASSUMING, AND ARE PREPARED TO ASSUME, THE RISKS ASSOCIATED WITH SUCH CONTRACTS.
TRADING DERIVATIVES CONTRACTS RELATING TO DIGITAL ASSETS AND TRADING WITH GALAXY DIGITAL IS NOT SUITABLE FOR EVERYONE AND CAN RESULT IN LOSSES UP TO, AND IN SOME CIRCUMSTANCES ABOVE, THE ENTIRE AMOUNT YOU INVEST. YOU SHOULD ONLY ENTER INTO SUCH TRANSACTIONS AFTER YOU ARE CERTAIN THAT YOU FULLY UNDERSTAND THE RISKS ASSOCIATED WITH DOING SO.
Please also refer to the link here, for the ISDA General Disclosure Statement for Transactions and the ISDA Disclosure Annex for Commodity Derivative Transactions, which this Disclosure Statement supplements. If you cannot access this link please reach out to [email protected]
Risk Disclosures for Derivatives that Provide Exposure to or Reference Digital Assets
High Volatility, Speculation, Low Liquidity and High Market Concentration
Derivatives that provide exposure to digital assets* may trade at a value other than that which may be inferred from current values of the underlier due to factors including, but not limited to, high volatility, low liquidity and high market concentration in the underlier, as well as the fact that there may be significant variations in publicly available pricing sources.
The prices for many digital assets are highly volatile and can fluctuate significantly in short periods of time, sometimes even absent the occurrence of the types of economic events that normally precipitate price changes for other types of assets. Depending on how quickly prices change, you might not be able to terminate or hedge your digital asset-referencing transactions before you suffer significant losses. The absence of industry standard terms for digital asset and digital asset derivatives transactions can also increase this risk. Another source of volatility for digital asset prices is the high degree of digital asset demand that is generated by speculators and investors seeking to profit from the short- or long-term holding of digital assets. Such speculators and investors losing interest in digital assets could reduce liquidity and increase volatility, and ultimately make it difficult to accurately value digital assets.
Liquidity (and relative liquidity) is another source of potential volatility for digital asset prices. The overall size of many digital asset markets can be significantly smaller than markets for other types of assets, which can limit liquidity and increase volatility. In addition, liquidity in digital asset markets can change quickly. Because the market forces that determine digital asset prices are not entirely clear, it is difficult to predict what market factors can lead to substantially more or less liquidity in digital asset markets. Digital assets trade across different exchanges and in varied jurisdictions, so local and regional events can affect the liquidity, prices and volatility of digital assets in unexpected ways. Liquidity can also be adversely affected by the development of updated or new technologies, market standard terms and new digital assets and the migration of trading interest to such new digital assets or away from existing technologies and market standard terms. You should monitor liquidity developments in digital assets carefully.
The liquidity of digital assets and the volatility of digital asset prices also depend on the concentration of owners of a digital asset or the traders in such digital assets. There is little transparency in the ownership of or trading interest in most digital assets, nor are there generally limits on concentrated ownership or trading interest. Ownership of or trading in particular digital assets can be concentrated in a limited number of countries or regions and may be controlled by a small number persons or entities. Events in such countries and regions, or events that affect such persons or entities, could have a disproportionate impact on the prices of digital assets. Greater concentration in ownership or trading interest can also lead to heightened volatility due to sharp swings in the level of supply or demand. High levels of concentration can also make a market susceptible to manipulation or distortion.
Volatility, liquidity and concentration risk with respect to digital assets may ultimately affect the terms of derivatives contracts that reference digital assets. High volatility or low liquidity could, for example, lead to difficulties in ascertaining the correct valuation for a digital asset, which could in turn pose challenges with respect to payment, delivery and collateral obligations, among others, under a related derivatives contract since these obligations rely upon the value of the underlying digital asset.
Malicious Actors
Mining is the act of using a computer to run computations designed to help build the next block (a set of records of digital asset transactions) on the distributed ledger where digital transfers are recorded. A material concentration in processing power dedicated to mining on a digital asset network can also increase the risk of a malicious actor or botnet, i.e., a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers, obtaining a majority of the processing power dedicated to mining on any given digital asset network, in which case it may be able to alter the distributed ledger by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions. Such activity by the malicious actor or botnet could have significant effects on the liquidity and price of the digital asset. Such acts could also affect digital asset derivatives by disrupting markets in the underlying digital asset and introducing uncertainty as to the price or other characteristics of the digital asset.
Lack of Trading History
The markets for digital assets and derivatives that reference digital assets are relatively new. Accordingly, there do not exist long histories of pricing information for digital assets, and the market forces that determine the prices for digital assets continue to evolve. This risk is heightened for newer digital assets and the derivatives that reference them, as these are less developed markets with shorter trading histories. The evolution of these market factors can lead to significant changes to market trading behavior and digital asset prices, and can in turn affect the terms of derivatives contracts that reference digital assets.
The Effect of Consumer Preferences
The growth of the digital asset industry is subject to a high degree of uncertainty. Changes in consumer demographics and public tastes and preferences over time can affect the further development of this industry, which in turn could move the price of digital assets in unexpected and unpredictable directions.
Such changes in public tastes and preferences could be in response to, among other factors, the failure to maintain and update digital asset software and technology and a growing perception that the use and holding of digital assets is no longer safe and secure. The open-source nature of digital asset networks means that contributors are not generally directly compensated for their contributions in maintaining and updating the digital asset software and technology. Consequently, there is a lack of financial incentive for developers to maintain or develop the networks or adequately address issues that may emerge over time. A failure to do so can negatively impact consumer preferences for digital assets and consequently the prices of the relevant digital assets.
Further, social media and the news can affect consumer perception of digital assets. In particular, in circumstances where the digital asset is issued or sponsored by a single team or company, negative press of the team or issuing or sponsoring company could adversely impact the price of that digital asset.
Changing public perception with respect to digital assets could very well affect the terms of derivatives contracts that reference digital assets. By way of example, negative press that leads to public discontent with a particular digital asset (or, for that matter, digital assets more broadly) could dramatically affect the value of derivatives contracts which rely upon the value of an underlying digital asset.
Lack of Regulation; Possibility of Government Intervention
The “cash” or “spot” markets for most digital assets are largely unregulated in most jurisdictions. In addition, in some non-U.S. jurisdictions, the digital asset derivatives markets are largely unregulated. In particular, depending on their location, these markets and the participants therein may not be subject to market integrity or transparency rules, and participants in these markets may not be subject to registration, licensing or fitness requirements, business continuation, disaster recovery or cybersecurity requirements, or know your customer and anti-money laundering rules. This lack of regulation can make digital asset markets susceptible to manipulation or distortion, which may adversely affect your digital asset transactions and your derivatives contracts that reference digital assets. This is particularly the case to the extent that the digital asset derivatives we enter into with you reference digital assets or related derivatives that trade in unregulated markets, for example to establish one or more settlement prices or in connection with disruption or similar events.
Digital asset trading has also been associated with illegal activity, including drug dealing, money laundering and other forms of illegal commerce. Law enforcement may respond to such actions by limiting or shutting down trading venues or participation on such venues.
Digital assets currently face an uncertain regulatory landscape in the U.S. and many foreign jurisdictions. In the U.S., digital assets are not currently subject to federal regulatory oversight, but may be regulated by one or more state regulatory bodies.
Certain non-U.S. jurisdictions have imposed stringent regulatory controls on digital asset transactions, greatly limiting liquidity in those jurisdictions. Other jurisdictions may, in the future, impose similar controls, or significant taxes or other requirements that greatly restrict participation in digital asset markets and funding markets, either in general or based on the nature of specific participants or transactions. All of these actions can significantly affect liquidity, volatility and prices for digital assets and derivatives contracts which rely on the value of an underlying digital asset.
Most digital asset derivatives are regulated in the United States by the CFTC. The CFTC and the SEC have brought numerous enforcement actions involving digital asset derivatives and securities, and they are expected to continue to focus their enforcement efforts on these types of instruments. Furthermore, the CFTC may promulgate new rules affecting digital asset derivatives and other federal regulators may also impose new regulations on entities and individuals that participate in the digital asset derivatives ecosystem. The effect of such rule changes, or proposed rule changes, is highly uncertain and could impact the terms or even the legality of certain digital asset derivatives. Additionally, the derivatives contract may not account for disruptions caused by proposed or effectuated rule changes in the United States or other jurisdictions.
Intellectual Property Claims
Third parties may assert intellectual property claims relating to the operation of a digital asset exchange or network and the source code relating to the holding and transfer of digital assets. Regardless of the merit of any intellectual property or other legal action, any threatened action could reduce the confidence in the long-term viability of digital asset networks or adversely affect prices for digital assets and their related derivatives.
Trading Hours May Not Align
The market for many digital assets operates on a global, twenty-four hour basis. Therefore, your and our hours of operation, during which you and we may transact in and value digital asset derivatives transactions, calculate margin and settlement amounts, issue margin calls and settle collateral delivery or return amounts, may not conform to the hours during which the underlying digital assets are most traded. To the extent this occurs, significant changes in digital asset prices as well as market, economic and political conditions due to reasons beyond our control, and thus the value of digital asset transactions and the amount of credit exposure they create between us, may take place during times when it may be difficult for you to monitor or react to them.
Digital asset markets that operate continuously may also impact digital asset derivative transactions. For example, derivatives transactions typically rely upon the underlying asset market having conventional times during which valuations are established, such as an official closing price at the end of a business day. This concept would not apply to digital asset markets that operate on a twenty-four hour basis. Furthermore, while some digital asset trading venues may publish prices at a certain time or across a certain period, these times or windows are typically not intrinsically tied to any circumstances regarding underlying market activity (such as the availability of trading or trading volume). This may lead to uncertainty as to how and when valuation of a digital asset will be ascertained for purposes of a digital asset derivative.
Forks
It is possible that planned, unplanned, sudden, scheduled, expected, unexpected, publicized, not well-known, consensual, and/or controversial changes to the underlying operating rules of certain digital assets may occur from time to time in such a way as to result in the creation of one or more related versions of an existing digital asset (each instance of any such change, a “Fork”). Forks may result in multiple versions of a digital asset and could lead to the dominance of one or more such versions of a digital asset and the partial or total abandonment or loss of value of any other versions of such digital assets.
A fork could fundamentally alter the nature or functionality of the digital asset, which could in turn affect the terms of a derivatives contract that reference that digital asset. Depending on its terms, the derivatives contract may not account at all for Forks or the potential existence of multiple versions of the digital asset underlier, may provide discretion for one of the parties to determine how to address the potential impact of a Fork (including adjustments to payment and settlement terms), or may permit or require early termination of the transaction upon the occurrence of a Fork, all of which could affect the economic terms of the transaction or result in disputes.
Airdrops
An airdrop involves the unilateral issuance of a new digital asset to the holders of an associated digital asset. An airdrop could affect the value of the digital asset in unknown ways, which in turn may impact the terms of a related digital asset derivative. Depending on its terms, the derivatives contract may not account at all for airdrops, may provide discretion for one of the parties to determine how to address the potential impact of an airdrop (including adjustments to payment and settlement terms), or may permit or require early termination of the transaction upon the occurrence of an airdrop, all of which could affect the economic terms of the transaction or result in disputes.
Delisting
Digital assets or related futures or options may be delisted from a trading platform suddenly and for any reason or no reason whatsoever, including, without limitation, changes in applicable law or regulation or by court order. Delisting could make it difficult or impossible to liquidate your positions in derivatives contracts that reference the delisted digital asset, future, or option and could ultimately result in a complete loss of value. Depending on its terms, the derivatives contract may not account at all for delistings, may provide discretion for one of the parties to determine how to address the potential impact of a delisting (including adjustments to payment and settlement terms), or may permit or require early termination of the transaction upon the occurrence of a delisting, all of which could affect the economic terms of the transaction or result in disputes.
Risk of Market Disruption
In addition to those mentioned above, several other events or factors can result in disruption of digital asset markets and the derivatives contracts that reference them, including:
Commencement of insolvency proceedings in respect of one or more digital assets, digital assets derivatives exchanges or custodians;
Temporary or permanent suspensions or limitations on trading in digital assets or related derivatives, including the triggering of limits on the amount of price fluctuation, an unscheduled market close, or, as noted above, intervention by a government authority;
Developments in regulation or taxation of digital assets or related derivatives or securities, including heightened enforcement activity or the imposition of limits on owning or trading in digital assets or related derivatives or securities; and
Changes in a digital asset’s underlying technology protocols (such as a Fork in the distributed ledger used by a digital asset), initiation or discontinuation of use or support by a significant merchant, investor or other market participant, exchange or other intermediary, or a migration of developers or miners away from certain platforms.
In addition, cyberattacks, theft, fraud or other operational losses at exchanges, wallet providers or other platforms or market intermediaries also pose a significant risk of disruption of digital assets markets and their related derivatives. Particularly, the cybersecurity risks of digital assets and related “wallets” or spot exchanges include hacking vulnerabilities and a risk that publicly distributed ledgers may not be immutable. A cybersecurity event, such as a coordinated attack on one or more digital asset exchanges or other market intermediaries, could result in a substantial, immediate and irreversible loss for market participants that trade in digital assets and the derivatives contracts that reference them. Similarly, it is possible that the holder of a digital asset could lose access to the platform or infrastructure through which it holds the digital asset as the result of the loss or theft of the private key relating to that digital asset. In many cases, the private key would not be recoverable, thus potentially resulting in a permanent inability to deal in the relevant digital asset and a dramatic impact on the liquidity and value of any derivatives contract that references the unrecoverable digital asset. Even a minor cybersecurity event in a digital asset is likely to result in downward price movement on that product and may also potentially impact other digital assets and their related derivatives. The viability of any digital asset derivative generally depends upon an accurate and immutable ledger recording digital asset transfers, as well as the safe and sound operation of digital asset platforms and infrastructure.
Depending on its terms, the derivatives contract may not account at all for these sorts of disruptions, may provide discretion for one of the parties to determine how to address the potential impact of a disruption (including adjustments to payment and settlement terms), or may permit or require early termination of the transaction upon the occurrence of a disruption, all of which could affect the economic terms of the transaction or result in disputes.
Transaction Fees
Many digital assets allow market participants to offer miners (i.e., parties that process transactions and record them on a blockchain or distributed ledger) a fee. While not mandatory, a fee is generally necessary to ensure that a transaction is promptly recorded on a blockchain or distributed ledger. The amounts of these fees are subject to market forces and it is possible that the fees could increase substantially during a period of stress, which could in turn affect the value of derivatives that reference these digital assets.
Derivatives
Dodd-Frank Swap Dealer Disclosures And Notifications
Disclosures are provided in anticipation of Galaxy Derivatives LLC (“GDeriv LLC”) registering as a swap dealer with the U.S. Commodity Futures Trading Commission.
INTRODUCTION
The Commodity Exchange Act (“CEA”), Commodity Futures Trading Commission (“CFTC”) rules, Securities Exchange Act of 1934 (“Exchange Act”) and the Securities Exchange Commission (“SEC”) rules, pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") impose comprehensive regulatory requirements on swap dealers. These requirements mandate that GDeriv LLC (“Swap Dealer”) provides certain disclosures and notifications (“Disclosures”) to end-user counterparties and prospective counterparties in relation to entering into a Swap as applicable to allow the counterparty to assess the material risks and material characteristics of the Swap and the material incentives and conflicts of interest that GDeriv LLC may have in connection with the Swap.DEFINITIONS
“Business Day” means a day on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits).
“CEA” means the U.S. Commodity Exchange Act.
“CFTC” means the U.S. Commodity Futures Trading Commission.
“CFTC Regulations” means the rules, regulations, orders and interpretations published or issued by the CFTC.
“DCO” means a “derivatives clearing organization” as such term is defined in Section 1a(15) of the CEA and the CFTC Regulations.
“DF” means the Dodd-Frank Act.
“Disclosures” has the means the disclosures and notifications set forth in this document.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act” means the Securities Exchange Act of 1934.
“FCM” means a futures commission merchant subject to regulation under the CEA.
“Interpretive Guidance” means the Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 Fed. Reg. 45292 (July 26, 2013), as amended or supplemented by the CFTC from time to time.
“SEC” means the Securities Exchange Commission.
“Swap” means a “swap” as defined in Section 1a(47) of the CEA and CFTC Regulation 1.3. The term “Swap” also includes any foreign exchange swaps and foreign exchange forwards that may be exempted from regulation as “swaps” by the U. S. Secretary of the Treasury pursuant to authority granted by Section 1a(47)(E) of the CEA.
“Swap Communication Event” means, with respect to you and Swap Dealer, each (1) Swap Transaction Event, (2) offer to enter into a Swap Transaction Event, and (3) “recommendation” (as such term is used in CFTC Regulation 23.434 and 23.440) with respect to a Swap or trading strategy involving a Swap.
“Swap Transaction Event” means, with respect to you and the Swap Dealer, the execution of a new Swap or any material amendment, mutual or unwind novation of an existing Swap.
DISCLOSURES AND NOTIFICATIONS
Material Risk Disclosures
The International Swaps and Derivatives Association, Inc. (“ISDA”) has created standard industry documentation to assist swap dealers in satisfying ongoing CFTC requirements. Please review the following documentation which describes the disclosures of material information required to be provided to you pursuant to CFTC Regulation 23.431(a). These disclosures include (i) material characteristics of a variety of transactions related to certain underlying referenced assets; (ii) material risks of such transactions and (iii) material incentives and conflicts of interest that might exist when entering into a swap transaction with a swap dealer such as GDeriv LLC .
For access to the ISDA General Disclosure Statement for Transactions which include the Material Risk Disclosures please login here. If you cannot access this link please reach out to [email protected]. Material Economic Terms (METs) Disclosures
Please see the following documentation for the material economic terms (“MET”) of Swaps required to be provided to you pursuant to CFTC Regulation 23.431(a)(2). This disclosure contains material information concerning the swap in a manner reasonably designed to allow you to assess the material characteristics of the particular swap, which shall include the material economic terms of the swap, the terms relating to the operation of the swap, and the rights and obligations of the parties during the term of the swap.
For access to the MET disclosures please login here. If you cannot access this link please reach out to [email protected].Material Conflicts of Interest
Some material conflicts of interest may arise between you and Swap Dealer where Swap Dealer performs services for you with respect to futures, options on futures, swaps (as defined in the CEA), forwards or other commodity derivatives, (collectively with services performed by Swap Dealer, “Contracts”). These conflicts of interests can arise in particular when Swap Dealer has an economic or other incentive to act, or persuade you to act, in a way that favors Swap Dealer, or its respective affiliates. Under applicable law, including regulations of the CFTC, not all Swaps are required to be executed on an exchange, a swap execution facility, execution facility (each, a “Trading Facility”), even if a Trading Facility lists the Swap as applicable, for trading. In such circumstances, it may be financially advantageous for Swap Dealer, or its respective affiliate to execute a Swap with you bilaterally in the over-the-counter market rather than on a Trading Facility and, to the extent permitted by applicable law, we may have an incentive to persuade you to execute your Swap bilaterally. Applicable law may permit you to choose the CFTC-registered DCO to which you submit a Swap for clearing. You should be aware that Swap Dealer may not be a member of, or may not otherwise be able to submit your Swap to, the DCO of your choice. Consequently, Swap Dealer, as applicable, may have an incentive to persuade you to use a DCO or clearing agency of which it or its affiliate is a member. You also should be aware that Swap Dealer or an affiliate of these may own stock in, or have some other form of ownership interest in, one or more U.S. or foreign Trading Facilities or DCOs where your Contracts may be executed and/or cleared. As a result, Swap Dealer or a respective affiliate may receive financial or other benefits related to its ownership interest when Contracts are executed on a given Trading Facility or cleared through a given DCO or clearing agency, and Swap Dealer would, in such circumstances, have an incentive to cause applicable Contracts to be executed on that Trading Facility or cleared by that DCO or clearing agency. In addition, directors, officers and employees of Swap Dealer or an affiliate may also serve on the board of directors or on one or more committees of a Trading Facility, DCO, or clearing agency. In addition, Trading Facilities, DCOs, and clearing agencies may from time to time have in place other arrangements that provide their members or participants with volume, market-making or A-2 other discounts or credits, may call for members or participants to pre-pay fees based on volume thresholds, or may provide other incentives or arrangements that are intended to encourage market participants to trade on, or direct trades to, that Trading Facility, DCO, or clearing agency. Swap Dealer, or an affiliate may participate in and obtain financial benefits from such incentive programs. When Swap Dealer provides execution services to you (either in conjunction with clearing services or in an execution-only capacity), Swap Dealer may direct orders to affiliated or unaffiliated market-makers, other executing firms, individual brokers or brokerage groups for execution. When such affiliated or unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Likewise, where permitted by law and the rules of the applicable Trading Facility, Swap Dealer, or an affiliate of these may solicit a counterparty to trade opposite your order or enter into transactions for its own account or the account of other counterparties that may, at times, be adverse to your interests in a Contract. In such circumstances, that counterparty may make payments and/or pay a commission to Swap Dealer, or an affiliate of these, in connection with that transaction. The results of your transactions may differ significantly from the results achieved by Swap Dealer for its own account, its affiliates, or for other customers. In addition, where permitted by applicable law (including, where applicable, the rules of the applicable Trading Facility), Swap Dealer, and either of its directors, officers, employees or affiliates may act on the other side of your order or transaction by the purchase or sale for an account, or the execution of a transaction with a counterparty, in which Swap Dealer, or a person affiliated has a direct or indirect interest, or may affect any such order with a counterparty that provides Swap Dealer, or its respective affiliates with discounts related to fees for Contracts or other products. In cases where Swap Dealer has offered you a discounted commission or clearing fee for the applicable Contract executed through it as agent or with it or its affiliate acting as counterparty, Swap Dealer or its affiliates may be doing so because of the enhanced profit potential resulting from acting as executing broker or counterparty. Swap Dealer, or its respective affiliates may act as, among other things, an investor, research provider, placement agent, underwriter, distributor, remarketing agent, structurer, securitizer, lender, investment manager, investment adviser, commodity trading advisor, market maker, or trader. In those and other capacities, Swap Dealer, or its respective directors, officers, employees and affiliates may take or hold positions in, or advise other customers and counterparties concerning, or publish research or express a view with respect to, a Contract or a related financial instrument that may be the subject of advice from Swap Dealer or its affiliates to you. Any such positions and other advice may not be consistent with, or may be contrary to, your interests or to positions that are the subject of advice previously provided by Swap Dealer, or its respective affiliate to you, and unless otherwise disclosed in writing, Swap Dealer, or its respective affiliates are not necessarily acting in your best interest and are not assessing the suitability for you of any Contract. Swap Dealer, or its respective affiliates may also facilitate the activities of other counterparties, or hedge transactions it has entered into with other counterparties, which transactions may have adverse effects on the value of the assets underlying any Swap entered into between you and Swap Dealer, entered into between. Acting in one or more of the capacities noted above may give Swap Dealer or its respective affiliates access to information relating to markets, investments and products. As a result, Swap Dealer, or any of its affiliates may be in possession of information which, if known to you, might cause you to seek to dispose of, retain or increase your position in one or more Contracts or other financial instruments. Swap Dealer, and its affiliates will be under no duty to make any such information available to you, except to the extent we have agreed in writing or as may be required under applicable law.Pre-Trade Mid-Market Mark Methodology
Disclosures related to the methodology used by Swap Dealer in providing you with pre-trade mid-market marks as per compliance with CFTC Regulation 23.431(a)(3). The Pre-Trade Mid Mark is the “PTMMM” disclosed to you pursuant to CFTC Rule § 23.431(a)(3) with respect to the disclosure of the price of a swap prior to execution. The PTMMM does not include amounts for profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments. Please note that any PTMMM GDeriv LLC provides to you may not necessarily, and would often be expected not to be, a price at which either we or you would agree to enter into or terminate a swap. You should not regard any PTMMM that we provide to be an offer to enter into or terminate the relevant swap at that value or price. Furthermore, any margin calls related to swaps may be based on considerations other than PTMMM and the PTMMM may not be the value of the swap that is marked on GDeriv LLC’s books. For less liquid products, GDeriv LLC’s consider historical realized volatilities related to the underlier and/or data related to more liquid coins in its PTMMM modeling methodology.
As the PTMMM does not include amounts for profit, credit reserves, hedging, funding, liquidity and other relevant costs, reserves and adjustments, it is highly likely to differ from the price at which GDeriv LLC is willing to enter into the relevant proposed swap. That difference is not indicative of the profit, if any, that GDeriv LLC will realize from the relevant proposed swap, which will be dependent on a number of variables including, without limitation, price volatility, market liquidity and relevant hedging activity, if any, by GDeriv LLC. Each PTMMM is provided solely for the information of the counterparty to the swap and is not intended for the benefit of any other party. Unless otherwise indicated, all PTMMMs are provided in the same currency as the live trading price quoted to you by GDeriv LLC. Subject to market changes the PTMMM as a result can change from day to day.
Given certain variables a swap’s value may not be evident in the market and is therefore subjective. Any PTMMM we provide to you is time-sensitive and only current as of the time at which it is provided to you. Accordingly, GDeriv LLC’s PTMMM can vary significantly differ from other market participants. No PTMMM is provided in respect of any Swap transaction with a GDeriv LLC affiliate that is not a Swap Dealer or in respect of any derivative transaction that is not regulated by the CFTC.Scenario Analyses
With respect to each Swap between you and Swap Dealer you may request, and consult on the design of, a scenario analysis to allow you to assess your potential exposure in connection with such Swap pursuant to in accordance with CFTC Regulation 23.431(b).Daily Marks
In accordance with CFTC Regulation 23.431(d)(2), GDeriv LLC is required to provide daily marks (“daily mark”) to you with respect to uncleared Swaps. The daily mark is prepared by discounting the projected future cashflows of the swap transaction to arrive at a current value. For underliers involving coins with more observable markets, a component of the calculation is based on the volatility levels which is determined on the basis of evident market inputs, and for underliers with less observable markets, the daily mark considers historical realized volatilities related to the underlier and/or data related to more liquid coins. In some cases, GDeriv LLC may use certain models to determine the expected value of future cashflows. These estimated present and future cashflows models are then discounted to their present value using discount variables obtained from market inputs. GDeriv LLC in its sole discretion, may use different methodologies to provide the estimated cashflow, including but not limited to Monte Carlo simulations, Black-Scholes Model, or other pricing models. As such, GDeriv LLC is under no obligation to provide or disclose to you the methodology or inputs used in these determinations. For cleared Swaps originally executed between you and Swap Dealer, you have the right, upon request, to receive a daily mark from the futures commission merchant through which you clear such cleared Swap or the relevant derivatives clearing organization (“DCO”) or another third party in accordance with the CFTC Regulation 23.431(d)(1). Such daily mark may be provided directly by GDeriv LLC or through a third party. Any daily mark provided to you by GDeriv LLC may not necessarily, and would often not be expected to, be a price at which either we or you would agree to replace or terminate a Swap; include adjustments you need to make internally to account for your credit reserves, funding or liquidity costs; unless otherwise expressly agreed, be the basis for margin calls and maintenance of collateral; or be the value of the Swap that is marked on our books and records. To the extent that such marks may be based on inputs or information obtained from external sources, GDeriv LLC believes any such sources to be reliable but makes no representations or warranties with respect to the accuracy, reliability, or completeness of such data or information, or the resulting daily mark. Pursuant to Section 4s(h)23.431(d) of the CEA, the daily mark is exclusive of several additional factors that may influence our pricing of Swaps, namely, profit, credit reserves, hedging costs, funding and liquidity or any other costs or adjustments. Unsettled cash payments due from one party to the other are taken into account in the daily marks. daily marks are provided only in respect of Swap transactions that have not terminated or been novated or otherwise transferred to a third party, notwithstanding any unsettled cash payments that may remain in respect of such a terminated, novated or otherwise transferred Swap transaction. Daily marks are not provided in relation to your entire portfolio. No daily mark is provided with respect to any Swap transactions with an affiliate that is not a Swap Dealer or in respect of any derivatives transaction that is not regulated by the CFTC. Any daily marks provided by GDeriv LLC, as applicable, to you will be calculated as of the close of business on the prior Business Day in the locality specified in the notice of such daily mark to you, such locality to be consistently specified with regard to a class or type of Swaps, as applicable, unless otherwise agreed with Swap Dealer in writing. In addition, each daily mark will be expressed in terms of a position of a specified size and will be applicable only with respect to that size and may not reflect the mark that would be calculated with respect to a position or transaction of any other size.Clearing
With respect to any Swap entered into between you and Swap Dealer that is subject to the mandatory clearing requirements under Section 2(h) of the CEA, you have the sole right to select the DCO at which the Swap will be cleared pursuant to CFTC Regulation 23.432(a). With respect to any Swap entered into between you and Swap Dealer that is not subject to the mandatory clearing requirements under Section 2(h) of the CEA, you may elect to clear such Swap and you have the sole right to select the DCO at which the Swap will be cleared in accordance with CFTC Regulation 23.432(b). The decision by the clearing unit of Swap Dealer or of any affiliated clearing member of a DCO, or of any designated clearing member of a clearing agency, to provide Swaps services to you is determined based on some or all of the following criteria: (i) your credit profile, (ii) your capital and other financial resources, (iii) your expertise in trading complex financial products, including Swaps, as applicable, (iv) your operational, liquidity and risk management capabilities in trading financial products, including Swaps as applicable, (v) the types of Swaps that you intend to trade and clear at the clearing unit of Swap Dealer, or any affiliate thereof, (vi) whether the clearing unit of Swap Dealeror any affiliate thereof has the ability to clear the Swaps you are intending to trade, (vii) whether commercial and legal terms can be agreed with you, (viii) the approach you take to legal and compliance issues, (ix) your satisfaction of the client on-boarding requirements of the clearing unit of Swap Dealer, or its affiliates, (x) credit exposure, capital and other financial resources/condition of the clearing unit of Swap Dealer, or its affiliates, and (xi) any other relevant objective considerations.Special Entity Status
If you are an employee benefit plan defined in Section 3 of ERISA that is not subject to Title I of ERISA, you may elect to be treated as a special entity pursuant to CFTC Regulation 23.430(c).Recommendations
As of each Swap Communication Event, Swap Dealer discloses to you in accordance with CFTC Regulations 23.434(b)(3) and 23.440(b)(2)(iii) that (a) Swap Dealer is not undertaking to act in your best interests nor is it undertaking to assess the suitability of any Swap or trading strategy involving a Swap for you.Segregation of Initial Margin
If you supply funds or other property to Swap Dealer to margin, guarantee, or secure your obligations to Swap Dealer under an uncleared Swap, you have the right in accordance with CFTC Regulation 23.701(a)(1) to require segregation of those funds or other property other than with respect to variation margin payments. This notification is deemed to be effective prior to execution of the first uncleared swap transaction. If you supply funds or other property to Please contact your GDeriv LLC sales or business representative if you would like further information on how to make this election, or write to [email protected]Variation Margin Calculation Methodology Overview
In accordance with CFTC Rule §23.155(b)(1), an overview of the methodology to calculate a reasonable approximation of the variation margin requirement used by Swap Dealer is available to you upon request. Please contact your GDeriv LLC sales or business representative if you would like further information.Address for Complaints
Set forth below for each Swap Dealer are the physical address, email, and telephone number of the department to which any complaints may be directed:
Galaxy Derivatives LLC
ATTN: Compliance
300 Vesey St. 13th Floor
New York, NY 10282
[email protected]
(212) 273-9466
Material Conflicts Of Interest And Material Incentives Disclosure
The purpose of this disclosure is to provide you with information about some of the material conflicts of interest may arise between you and GDeriv LLC connection with GDeriv LLC offering or performing services for you with respect to futures, options on futures, swaps (as defined in the CEA), forwards or other commodity derivatives.
In particular, these conflicts of interests can arise when Swap Dealer has an economic or other incentive to act, or persuade you to act, in a way that favors Swap Dealer, or its respective affiliates.
TRADING FACILITY SELECTION
Under applicable law, inclusive of regulations of the CFTC, not all Swaps are required to be executed on an exchange, a swap execution facility, (“Trading Facility”), even if a Trading Facility lists the Swap, as applicable, for trading. In such circumstances, it may be financially advantageous for Swap Dealer, or its respective affiliate to execute a Swap with you bilaterally in the over-the-counter market rather than on a Trading Facility and, to the extent permitted by applicable law, we may have an incentive to persuade you to execute your Swap bilaterally.
CLEARING HOUSE SELECTION
Applicable law may permit you to choose the CFTC-registered DCO to which you submit a Swap for clearing. You should be aware that Swap Dealer may not be a member of or may not otherwise be able to submit your Swap to, the DCO of your choice. In addition, the clearing costs that Swap Dealer, as applicable may face will usually differ among DCOs. Consequently, Swap Dealer, as applicable, may have an incentive to persuade you to use a DCO or clearing agency of which it or its affiliate is a member and where Swap Dealer as applicable would face lower clearing costs, and may decline to enter into a Contract with you to the extent you choose another DCO.
OWNERSHIP INTERESTS
You also should be aware that Swap Dealer, or an affiliate of these may own stock in, or have some other form of ownership interest in one or more U.S. or foreign Trading Facilities or DCOs where your Contracts may be executed and/or cleared. As a result, Swap Dealer, or a respective affiliate may receive financial or other benefits related to its ownership interest when Contracts are executed on a given Trading Facility or cleared through a given DCO or clearing agency, and Swap Dealer would, in such circumstances, have an incentive to cause applicable Contracts to be executed on that Trading Facility or cleared by that DCO or clearing agency. In addition, directors, officers and employees of Swap Dealer, or an affiliate may also serve on the board of directors or on one or more committees of a Trading Facility, DCO, or clearing agency.
OTHER FINANCIAL INCENTIVES
In addition, Trading Facilities, DCOs, and clearing agencies may from time to time have in place other arrangements that provide their members or participants with volume, market-making or other discounts or credits, may call for members or participants to pre-pay fees based on volume thresholds, or may provide other incentives or arrangements that are intended to encourage market participants to trade on, or direct trades to, that Trading Facility, DCO, or clearing agency. Swap Dealer, or an affiliate may participate in and obtain financial benefits from such incentive programs.
OTHER CONFLICTS OF INTEREST
When Swap Dealer provides execution services to you (either in conjunction with clearing services or in an execution-only capacity), Swap Dealer may direct orders to affiliated or unaffiliated market-makers, other executing firms, individual brokers or brokerage groups for execution. When such affiliated or unaffiliated parties are used, they may, where permitted, agree to price concessions, volume discounts or refunds, rebates or similar payments in return for receiving such business. Likewise, where permitted by law and the rules of the applicable Trading Facility, Swap Dealer, or an affiliate of these may solicit a counterparty to trade opposite your order or enter into transactions for its own account or the account of other counterparties that may, at times, be adverse to your interests in a Contract. In such circumstances, that counterparty may make payments and/or pay a commission to Swap Dealer or an affiliate of these, in connection with that transaction. The results of your transactions may differ significantly from the results achieved by Swap Dealer for its own account, its affiliates, or for other customers.
In addition, where permitted by applicable law (including, where applicable, the rules of the applicable Trading Facility), Swap Dealer, and either of its directors, officers, employees or affiliates may act on the other side of your order or transaction by the purchase or sale for an account, or the execution of a transaction with a counterparty, in which Swap Dealer, or a person affiliated with either dealer has a direct or indirect interest, or may affect any such order with a counterparty that provides Swap Dealer, or its respective affiliates with discounts related to fees for Contracts or other products. In cases where Swap Dealer has offered you a discounted commission or clearing fee for the applicable Contract executed through it as agent or with it or its affiliate acting as counterparty, Swap Dealer, or its affiliates may be doing so because of the enhanced profit potential resulting from acting as executing broker or counterparty.
Swap Dealer, or its respective affiliates may act as, among other things, an investor, research provider, placement agent, underwriter, distributor, remarketing agent, structurer, securitizer, lender, investment manager, investment adviser, commodity trading advisor, market maker, or trader. In those and other capacities, Swap Dealer, or its respective directors, officers, employees and affiliates may take or hold positions in, or advise other customers and counterparties concerning, or publish research or express a view with respect to, a Contract or a related financial instrument that may be the subject of advice from Swap Dealer or its affiliates to you. Any such positions and other advice may not be consistent with, or may be contrary to, your interests or to positions that are the subject of advice previously provided by Swap Dealer, or its respective affiliate to you, and unless otherwise disclosed in writing, Swap Dealer, or its respective affiliates are not necessarily acting in your best interest and are not assessing the suitability for you of any Contract or related financial instrument. Swap Dealer, or its respective affiliates may also facilitate the activities of other counterparties, or hedge transactions it has entered into with other counterparties, which transactions may have adverse effects on the value of the assets underlying any Swap entered into between you and Swap Dealer, Acting in one or more of the capacities noted above may give Swap Dealer, or its respective affiliates access to information relating to markets, investments and products. As a result, Swap Dealer, or any of its affiliates may be in possession of information which, if known to you, might cause you to seek to dispose of, retain or increase your position in one or more Contracts or other financial instruments. Swap Dealer, and its affiliates will be under no duty to make any such information available to you, except to the extent we have agreed in writing or as may be required under applicable law.
* For purposes of this Disclosure Statement, the term “digital asset” refers to an asset that is issued and/or transferred using distributed ledger or blockchain technology, including, but not limited to, “virtual currencies,” “coins,” and “tokens.”