Nadex self-certifies two new cryptocurrency products
North American Derivatives Exchange, Inc. (Nadex) self-certified the terms and conditions for its new Bitcoin Cryptocurrency Touch Bracket Variable Payout Contracts and Ether Cryptocurrency Touch Bracket Variable Payout Contracts.
Nadex has listed both Binary and Call Spread Contracts based on the Underlying bitcoin market at various times since 2014. As the public interest in cryptocurrency continues to grow, Nadex continues to expand its product offering to meet public demand. Nadex has decided to focus its digital currency offering on the two most popular crypto coins – bitcoin and Ether – and to structure the contracts as “Touch Bracket Contracts”.
The new Bitcoin and Ether Cryptocurrency “Touch Bracket” Variable Payout Contracts will be cash-settled and will operate in the same fashion as Nadex’s currently listed Touch Bracket Contracts. Touch Bracket Contracts are not only quite popular in markets with high volatility, such as cryptocurrency, but due to their unique structure inherently minimize the possibility of contract manipulation.
A Touch Bracket Contract is a type of Variable Payout Contract and is similar to a Call Spread in that it contains a pre-determined Ceiling and Floor price level. However, unlike a Call Spread Contract, if the Underlying market, as reflected in the corresponding Indicative Index, for a Touch Bracket Contract equals or moves through (i.e., “touches”) either the Ceiling or Floor level of a Touch Bracket at any time prior to the listed Expiration time, the Touch Bracket Contract will immediately expire.
In the event the Underlying market does not touch the Ceiling or Floor prior to its listed Expiration time, the Touch Bracket will expire at the listed Expiration time, which will occur on the last trading day of the week. Accordingly, Nadex categorizes its Touch Bracket Contracts as “weekly” Contracts.
The notional value of one Bitcoin Touch Bracket Contract or one Ether Touch Bracket Contract will be $500.
The Expiration Value of the Crypto Contracts will be the Indicative Index value calculated by Nadex at the time that Indicative Index Value either equals or is greater than the Contract’s Ceiling, is equal to or less than the Contract’s Floor, or at the listed Expiration if the Contract is not knocked-out early. Because a Touch Bracket Contract will always expire concurrent with the Indicative Index Value that will be used to determine the settlement of the Contract, it is impossible for the final Expiration Value to be published prior to the expiration of the Nadex Contract. No trading in the listed Contract will occur following expiration of the Contract.
Moreover, the Indicative Index Value is calculated using Underlying prices leading up to the Contract’s expiration. Therefore, no trading in the Underlying markets following expiration of the Nadex Contracts will impact the final settlement of the Nadex Contracts.
Finally, consistent with all other Contracts currently traded on Nadex, the Crypto Contracts will be fully collateralized.
The Indicative Index for both the Bitcoin and Ether Crypto Contracts will be determined by using Nadex’s standard Indicative Index calculation method (the “Nadex Calculation Method”). Nadex will calculate and produce a Bitcoin Index Value and an Ether Index Value once each second throughout the life of the Crypto Contracts.
That is, each second Nadex will calculate a Bitcoin and Ether Index Value by taking all trade prices in the relevant Underlying bitcoin or Ether markets, as reported in the ICE® Crypto Data.
These contracts will be listed on or after trade date December 5, 2022.