Comment Text:
The Honourable Caroline D. Pham
Acting Chairman
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Date: 19th May 2025
Re: Request for Comment on Trading and Clearing Derivatives on a 24/7 Basis
Dear Acting Chairman Pham,
Tokenovate appreciates the opportunity to respond to the Commodity Futures Trading Commission’s (CFTC) Request for Comment on Trading and Clearing Derivatives on a 24/7 Basis (the RFC) published 21 March 2025.
Introduction
Tokenovate is a UK-headquartered technology firm developing a distributed-ledger post-trade automation platform for derivatives and securities-financing transactions.
Our platform automates trade lifecycle events (including confirmation, valuation, margining and settlement) in real time, embedding the FINOS Common Domain Model (CDM) to promote operational, legal and regulatory harmonisation across different financial products. Accordingly, our responses to the RFC concentrate on questions concerning collateral mobility, real-time margin, operational resilience and risk controls, areas in which blockchain technology and tokenisation could materially reduce the risks that the Commission has identified.
We are grateful for the Commission’s leadership in examining these issues and stand ready to assist in crafting a framework that enables safe, continuous derivatives markets while enhancing customer protection and market integrity.
High-level Response
Tokenovate is supportive of the Commission’s exploration of continuous trading and clearing, assuming there is demonstrable commercial demand among market participants. We believe that with appropriate risk parameterisation and phased product selection (beginning with highly liquid, cash-settled instruments), the industry could adopt 24/7 trading and clearing in very short order.
In our judgment, the principal impediments to safe 24/7 markets are procedural, not technological. Modern distributed-ledger infrastructure already permits real-time, rules-based risk management that operates independently of banking hours.
For example, through tokenisation of eligible collateral assets, margin calls can be met instantly and ownership of that collateral can transfer automatically upon default. This architecture delivers the same practical effect of the prefunding buffer contemplated by the RFC as an additional risk mitigation measure, without reliance on additional credit lines, complex pre-funding calculations or manual interventions. When combined with the CDM, these same tools can provide market participants, infrastructure providers and regulators with an immutable, synchronised record of every lifecycle event, materially reducing operational and reconciliation risk. Tokenovate is delighted to be leading this work through our chairmanship of the FINOS CDM Tokenized Assets WG.
From a regulatory perspective, achieving these benefits will require recognition of digital-ledger records as the definitive books and records, and the removal of legacy rules that presuppose a Monday-Friday settlement cycle. Helpfully, recent legislative developments support the direction of travel toward continuous market infrastructure. We note in particular that, in May 2025, the House Financial Services and Agriculture Committees jointly released a discussion draft bill on digital asset market structure. Among other proposals, the draft proposes amendments to the Commodity Exchange Act to define digital commodities, establish a regulatory regime for digital commodity brokers and custodians, and explicitly recognise the role of DLT, smart contracts, and digital custody solutions in the regulated commodity markets.
If enacted, this framework would align well with the technological assumptions underpinning safe and scalable 24/7 markets. In particular, the bill’s emphasis on qualified digital commodity custodians reinforces the importance of tokenised collateral held and enforced on-chain, while the formal recognition of blockchain-based systems supports the case for treating on-chain records as compliant books and records. Tokenovate encourages the Commission to continue aligning its regulatory treatment of collateral, custody, and recordkeeping with this emerging statutory architecture, ensuring that innovative infrastructure can be adopted within a clear, consistent, and resilient legal framework.
Our responses to the specific questions raised in the RFC are set out in Appendix 1.
Conclusion
Tokenovate is encouraged by the Commission’s willingness to engage with the fundamental changes needed to support 24/7 derivatives markets. We believe that DLT, smart-contract-based collateral enforcement, and a CDM-based data architecture are not only compatible with existing regulatory goals, but offer powerful tools for improving resilience, transparency, and risk control in real time.
We appreciate the opportunity to contribute to this consultation and would welcome continued dialogue with Commission staff and market participants as the regulatory framework evolves to meet the demands and opportunities presented by ongoing market and technological innovation.
Yours sincerely,
Richard Baker
Founder & CEO
Tokenovate
[email protected]
Ciarán McGonagle
Chief Legal & Product Officer
Tokenovate
[email protected]
Annex 1
Specific Questions and Responses
What risks (e.g. market, liquidity, operational) does clearing for trading on a 24/7 basis pose to the DCO and to FCM clearing members, beyond those faced during traditional business hours? What protections, or mitigants, should be in place at the DCO or FCM clearing member to ensure adequate mitigation of these novel risks?
The most significant novel risk associated with 24/7 clearing is the potential unavailability of collateral during non-banking hours. This is particularly acute in scenarios involving sharp price movements or defaults when banks and RTGS systems are closed, temporarily preventing a DCO or FCM clearing member from calling, transferring, or realising collateral.
We believe that this timing gap can be effectively mitigated by tokenising eligible cash and securities, enabling margin to be transferred on a continuous basis. Greater contractual automation of the type proposed by ISDA* could also facilitate automatic collateral transfers and ownership reassignments upon default, ensuring immediate enforceability.
From an operational perspective, distributed ledger technology can also enhance resilience significantly. For example, the Tokenovate platform records every trade lifecycle event immutably on-chain, creating a single source of truth, which we refer to as a “Unified Trade Record”. The Unified Trade Record is represented as a cryptographically hashed data-object on-chain and persists independently of any single system component, maintaining continuous availability and data records even in the event of infrastructure disruption.
Are there any pre‑ or post‑trade risk controls that would be necessary, or highly valuable, for the DCM, DCO, or FCM clearing member to implement, beyond those used in current markets? What novel risks would these controls aim to mitigate? Should FCMs require customers with open positions going into a weekend to prefund additional margin as a cushion against adverse price moves?
Where collateral assets are tokenised and can be transferred and settled on a 24/7 basis, the need for such a prefunding buffer would be significantly reduced. In such cases, margin buffers can be calibrated dynamically and proportionately to actual market risk, rather than relying on conservative prefunding assumptions that may prove overly restrictive or punitive. Such solutions would enable more efficient risk management without compromising safety.
Do the current risk disclosures provided by FCMs to customers adequately address risks associated with 24/7 trading? Should the Commission’s standard customer risk disclosure template required by Regulation 1.55 be revised to explicitly address 24/7 trading? What additional risk disclosures should be included in the standard template?
Tokenovate does not express a view on this question.
Is auto‑liquidation of customer positions an acceptable and prudent risk mitigant for FCMs that hold open positions for customers during weekends and other periods of time when customers cannot make margin deposits? Does auto‑liquidation present other risks to the market or market participants?
Tokenovate does not support auto-liquidation of individual customer positions as the primary means of managing credit risk in a 24/7 environment. While the ability to unwind positions rapidly during periods of margin shortfall may appear operationally efficient, we believe it is incompatible with the legal and structural foundations of the derivatives market as governed by the ISDA Master Agreement and its accompanying Credit Support Annex (CSA). The ISDA framework treats all transactions under a single agreement as an integrated whole. Auto-liquidating specific trades prior to the occurrence of a formal Event of Default fragments that legal unity and undermines the close-out netting provisions upon which both counterparties and systemic netting opinions rely.
Close-out netting under Section 6 of the ISDA Master Agreement is designed to be exercised in response to a clearly defined Event of Default or Termination Event, followed by a portfolio-wide valuation and a single, net settlement. If firms begin to liquidate trades unilaterally and selectively before such an event is triggered - particularly during weekends or outside normal market hours - this process may become distorted. Not only does this leave behind a residual and unnetted portfolio, it also creates legal uncertainty at precisely the moment when predictability and enforceability are paramount, particularly in a default or insolvency scenario. As such, these mechanisms would likely require a significant repapering exercise to assess and implement contractual mechanisms to achieve the intended outcome, without compromising the legal efficacy of the underlying contractual and netting arrangements.
Increased automation and tokenised collateral provides a more precise and legally consistent alternative. Where eligible assets are tokenised, ownership can be reassigned automatically upon the calculation of a margin shortfall, in full accordance with the title transfer (English law) or security interest (NY law) provisions of the CSA. This approach would enable immediate mitigation of counterparty risk without requiring trade liquidation, preserving the integrity of the single-agreement structure.
This is precisely why Tokenovate is working so closely with the CDM: to ensure that these legal mechanisms (such as collateral posting, margin calls, and default-driven transfers) are accurately and unambiguously reflected within our platform’s automation engine. By embedding the logic of the CSA directly into machine-readable workflows, we can program our lifecycle engine and tokenised assets to give effect to the economic and legal outcomes contemplated by the parties, while ensuring that automated processes remain fully aligned with established legal frameworks.
Finally, auto-liquidation carries additional systemic and operational risks. It increases the likelihood of procyclical behaviour during periods of low liquidity, such as weekends, and may force market participants to exit hedge positions abruptly, creating further volatility. It may also circumvent the notice and valuation procedures laid out in the CSA and Master Agreement, opening the door to valuation disputes and legal challenges. In our view, building 24/7 risk management capabilities around continuous collateral mobility and programmable enforcement better aligns with market structure, legal certainty, and long-term resilience.
How do the risks associated with 24/7 trading differ from the risks currently experienced by FCMs and DCOs from holding customer positions open during weekends or overnight?
24/7 trading means price discovery can occur at any time, including during low-liquidity (and, potentially, high-volatility) periods like nights and weekends. Within traditional systems, this could create considerable operational complexity, requiring systems to assess exposure, monitor margin, and act in real time potentially without reliance on traditional banking infrastructure
As we note in our response to Question 4, Tokenovate believes this environment requires a shift away from blunt tools like auto-liquidation and toward mechanisms that are both technologically supportive of continuous markets and consistent with legal and operational resilience requirements.
Are there competitive or other issues resulting from a market structure where an affiliate of a DCM or FCM supports or guarantees margin payments on behalf of customers during non‑banking hours?
Tokenovate does not express a view on this question.
Are there product types that are more reasonably suited to a 24/7 model? Are there others for which a 24/7 model would introduce risks which could not be adequately mitigated? What characteristics distinguish the first from the second set of products?
Yes, highly liquid, cash-settled contracts are best suited to the initial adoption of a 24/7 trading and clearing model. These products typically reference underlying markets (such as FX rates) that already operate on a near-continuous basis, meaning price discovery is available around the clock and valuation risk is more manageable. Their standardised terms, high trading volumes, and absence of physical delivery obligations reduce the operational and legal complexity of continuous settlement.
By contrast, products that are bespoke, illiquid, or require physical settlement introduce risks that are harder to mitigate in a 24/7 environment, particularly where pricing is less transparent, or where delivery depends on market infrastructure that does not operate outside business hours. A phased approach beginning with cash-settled, electronically traded products allows firms and infrastructure providers to develop and test resilient, round-the-clock workflows before expanding to more complex instruments.
What changes in market structure or operational capabilities (e.g. broader abilities to source and exchange collateral over weekends) could potentially mitigate risks associated with 24/7 markets? Are there forms of 24/7 trading which cannot or should not be allowed prior to these structural innovations?
As stated above, Tokenovate believes that the most important enabler of safe and resilient 24/7 markets is the tokenisation of collateral assets in a form that allows them to be transferred and settled at any time. Tokenised collateral recorded on DLT can be transferred instantly and automatically in response to margin calls, without relying on traditional banking infrastructure or settlement systems that are offline outside business hours. This capability eliminates the timing mismatch between market risk and collateral mobility, which is one of the core challenges in a round-the-clock environment.
For that reason, Tokenovate believes that unrestricted 24/7 trading should not be extended to broader segments of the market until tokenised collateral becomes a standard feature of post-trade infrastructure. In the meantime, 24/7 activity should be limited to product sets and venues where tokenisation and real-time enforcement of collateral are already operational.
Are there any current Commission regulations which would hinder 24/7 markets?
A practical constraint is that several requirements (for example, record‑keeping under Rule 1.31 and various margin‑processing provisions) were drafted with end‑of‑day batch cycles and banking‑hour funding in mind. Those assumptions create friction when markets, collateral, and risk controls must operate continuously to support a 24/7 market.
We are pleased to see that recent Commission dialogue points in the right direction. The CFTC’s Global Markets Advisory Committee (GMAC) in November 2024 formally recommended expanding the use of non‑cash collateral on distributed‑ledger rails. While encouraging, that recommendation has not yet been codified as binding guidance or a rule change. Accordingly, registrants that rely on tokenised collateral or on‑chain books and records must still map those data back into traditional formats to demonstrate compliance.
Greater regulatory clarity would therefore be helpful. Explicitly recognising on‑chain ledger entries as compliant “electronic storage media” under Rule 1.31, and confirming that smart‑contract‑based collateral transfers satisfy existing margin and segregation requirements, would remove residual uncertainty and facilitate the safe rollout of 24/7 market infrastructure grounded in DLT and tokenisation.
Are the Commission’s existing customer protection, financial integrity, net capital, and financial reporting requirements for FCM adequate for a 24/7 marketplace? If not, what should the Commission consider to enhance the above requirements?
While the Commission’s existing framework for customer protection, financial integrity, net capital, and financial reporting provides a strong baseline, some requirements may benefit from clarification or adaptation to reflect a continuously operating market environment. In particular, and as noted above, assumptions around daily margin collection, collateral segregation, and recordkeeping may not fully accommodate real-time margining, on-chain collateral enforcement, and continuous risk monitoring.
For example, where tokenised collateral is held on a distributed ledger, it may be appropriate for FCMs to recognise these assets when calculating net capital. Similarly, reporting obligations designed around end-of-day cycles could evolve to allow for event-driven or real-time disclosures where the underlying infrastructure supports it.
Tokenovate encourages the Commission to consider how existing rules might be modernised to reflect the operational capabilities of smart-contract-based risk management and 24/7 settlement infrastructure, without compromising the core objectives of customer protection and systemic safety.
B. DCM / SEF‑Focused Questions
Tokenovate provides the infrastructure that underpins real-time post-trade processes within CDM/SEFs. As such, we agree that continuous markets demand high operational standards. Our earlier responses (particularly to the first question on 24/7 clearing and to the discussion of distributed ledger infrastructure) address many of the core issues raised within the DCM / SEF-focussed questions set out in the RFC, especially the need for resilient, fail-safe systems that support continuous collateral enforcement and data integrity.
We believe that DLT, when implemented correctly and based on robust industry standards (such as CDM), inherently supports many of the architectural goals described in these questions, including tamper-evident audit trails and data integrity.
* See, for example, ISDA Legal Guidelines for Smart Derivatives Contracts - Collateral Documentation (https://www.isda.org/a/VTkTE/Legal-Guidelines-for-Smart-Derivatives-Contracts-Collateral.pdf)
