Comment Text:
February 27, 2026
Via Electronic Submission
Christopher Kirkpatrick
Secretary, Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Re: Request for Comment on the Direct Clearing of Derivatives by Retail
Participants
Dear Mr. Kirkpatrick:
QCX LLC (d/b/a Polymarket US), a designated contract market (DCM), and QC
Clearing LLC (d/b/a Polymarket Clearing), a derivatives clearing organization (DCO),
appreciate the opportunity to respond to the request for comment by the Commodity
Futures Trading Commission (CFTC)
1 on direct clearing of CFTC-regulated derivatives
by retail participants (RFC). 2
Although direct clearing is not a new concept, we agree with the CFTC statement in
the RFC that direct clearing, particularly by retail investors, has increased in popularity in
recent years. We appreciate Staff’s focus on gathering information from market
participants to ensure that regulations applicable to these platforms are appropriately
tailored and promote “responsible innovation” in U.S. derivatives markets.3 We look
forward to engaging with Staff and the CFTC as the regulatory framework for direct retail
DCOs and prediction markets continues to develop.
I. Background on Polymarket US and Polymarket Clearing
In 2025, Blockratize Inc. (d/b/a Polymarket) acquired Polymarket US and Polymarket
Clearing, representing a pivotal milestone in Polymarket’s mission to expand access to
regulated prediction markets in the United States. Currently, Polymarket US lists fully-collateralized event contracts cleared through its affiliated DCO, Polymarket Clearing.4
On November 24, 2025, the CFTC issued an Amended Order of Designation permitting
Polymarket US to operate an intermediated trading platform, subject to the full set of
regulatory requirements applicable to a DCM.5
Accordingly, retail market participants
may trade fully-collateralized event contracts on Polymarket US either directly or through
an FCM intermediary.6
As a result, Polymarket Clearing is authorized by the CFTC to
provide a “hybrid derivatives clearing model,” as described in the RFC, provided that
Polymarket Clearing clears only fully-collateralized products.
Polymarket Clearing maintains a comprehensive compliance and risk management
framework designed to meet its obligations under the Commodity Exchange Act (CEA)
and Part 39 of the CFTC’s regulations. This framework includes, but is not limited to: (i)
real-time collateralization controls, (ii) segregation of customer funds, (iii) operational
resilience and cybersecurity safeguards, and (iv) governance arrangements designed to
manage conflicts of interest between affiliated entities. Likewise, Polymarket US
maintains a framework to ensure compliance with its obligations under Part 38 or the
CFTC’s regulations, including systems for market surveillance and abuse detection.
Polymarket US and Polymarket Clearing support a risk-based, regulatory framework
for Retail DCOs that preserves direct clearing for fully-collateralized products, forgoes
unnecessary intermediation mandates and reflects the fact that fully-collateralized
contracts do not present the financial stability or contagion concerns raised by leveraged
derivatives and margined clearing models.
II. Principles for Retail DCO Regulation
In considering the appropriate regulations for Retail DCOs, we believe that the
CFTC should consider the following principles:
1. Fully-collateralized trading presents lower risks than margined trading.
Leveraged trading presents a number of risks that are not present in a fullycollateralized trading and clearing model. A party that trades on a margined basis presents
credit and default risk (to its counterparty in the OTC context and, in the cleared context,
to the DCO and, if applicable, its futures commission merchant (FCM)). Leveraged
trading is also more likely to present potential systematic risk concerns.
7 Those risks are
not present when market participants clear on a compliant, fully-collateralized DCO. In
the fully-collateralized context, a trading counterparty must, at all times, hold funds (in a
direct clearing model, at the DCO) sufficient to cover the maximum possible loss that it
could incur upon liquidation or expiration of the contract. Thus, where maximum loss is
pre-funded and held by the DCO at all times, the traditional rationale for margin models,
guaranty funds, and mutualized loss allocation simply does not apply.
Accordingly, the CFTC’s historical treatment of fully-collateralized clearing
reflects an explicit recognition that the model eliminates counterparty credit exposure and
default risk at the clearinghouse level as compared with margined trading.
8 For example,
significant aspects of the Part 39 regulations applicable to DCOs do not apply with respect
to fully-collateralized positions, including certain requirements related to: (i) financial
resources, 9 (ii) stress testing,10 (iii) risk management, 11 (iv) default procedures, 12 (v) reporting, 13 (vi) disclosure, 14 and (vii) governance.15 Furthermore, nothing in the CEA
requires the CFTC to regulate fully-collateralized clearing structures identically to
leveraged clearing models, and doing so would be inconsistent with the statute’s risk-based
regulatory framework. Rather, the legislative history and text of the CEA reflect
Congress’s intent to empower the CFTC to tailor regulation of DCOs based on their risk
profiles.16 This long-recognized principle, regardless of the specific underlying contract
traded at the DCM and cleared by the DCO, should remain at the core of any new or revised
regulations contemplated by the CFTC with respect to Retail DCOs.
2. Direct clearing should be preserved as an option; mandatory FCM
intermediation is unnecessary.
The CFTC has approved numerous direct clearing structures, and such models are
permissible under the CEA.17 Direct clearing has been proven in recent years to be safe
and effective, and FCM intermediation does not de facto eliminate all market or systemic
risk.18 Notably, the CEA does not mandate FCM intermediation for fully-collateralized
contracts, and we see no need for the CFTC to consider otherwise. Further, although this comment letter is focused on fully-collateralized contracts, we do not believe that FCM
intermediation should be mandatory in the leveraged trading context, either.
Mandatory intermediation would increase cost, complexity, and barriers to entry,
while also reducing optionality for customers. Furthermore, many of the protections
provided through intermediation are either unnecessary in the fully-collateralized context,
or may be achieved through means other than mandating intermediation (see Section 3
below). As described above, the fully-collateralized, disintermediated clearing model in
particular eliminates key risks associated with margined products, including credit and
default risk. Moreover, mandating FCM integration for fully-collateralized trading would
push Retail DCOs to establish affiliated FCMs that create unnecessary complexity along
with new vertical conflicts of interest and supervisory challenges that do not arise in a
disintermediated clearing model. FCMs play an important role in mitigating those types
of risks, but since they are not present in the direct clearing context, an intermediation
mandate would increase costs to investors in the form of FCM fees while reducing
customer optionality, without the benefits of risk reduction to justify those costs. Simply
put, an intermediation mandate would reduce customer choice and deprive the markets and
market participants of the benefits inherent in competition among different clearing
models.
3. The CFTC should consider tailored revisions to its Part 39 regulations to
codify existing practice to ensure Retail DCOs have sufficient compliance
programs promoting customer protection and market integrity measures.
As the RFC notes, some Retail DCOs are required to engage in some, but not all,
FCM responsibilities. Rather than mandating intermediation, the CFTC should consider
targeted amendments to Part 39 that apply specific customer-protection and
market-integrity obligations to Retail DCOs where appropriate, without importing the full
FCM regulatory regime (since, as noted above, the DCO in a direct model can already
cover many areas of risk without need for an intermediating FCM and certain risks are not
present in a fully-collateralized model). A good example relates to Bank Secrecy Act
(BSA) compliance. CFTC Regulation 42.2 requires every FCM to comply with the BSA
and the regulations promulgated thereunder, including through the implementation of a
customer identification program as part of the FCM’s compliance program.19 This
regulation exists because FCMs are defined as “financial institutions” under the BSA.20
DCOs, however, are not defined as financial institutions. In some circumstances, the CFTC
has conditioned the approval of a DCO’s registration on that DCO complying with the BSA as if it were a covered financial institution under that statute.21 We support a
regulatory approach that requires all Retail DCOs to comply with the BSA, ensuring that
all investors—whether direct clearing members or FCM customers—are screened through
an appropriate AML/KYC compliance program. We look forward to working with the
CFTC as it considers other FCM requirements that may be appropriate to apply to Retail
DCOs.
4. A hybrid clearing model does not necessarily imply a risk transfer as
between direct and intermediated clearing participants.
The RFC raises certain concerns about potential risk transfer between direct and
intermediated clearing participants in hybrid clearing models and asks, among other things,
whether such models should be subject to additional risk management protections. In
considering appropriate regulations in this regard, the CFTC should recognize that such
risk transfer is structurally limited in a fully-collateralized context, provided that, among
other things: (i) collateral for direct participants is fully segregated, (ii) no mutualized
guaranty fund at the DCO supports direct clearing activity, and (iii) default resources for
intermediated clearing are legally and operationally distinct. Therefore, the CFTC should
avoid categorical restrictions on a DCO solely because it offers a hybrid model and instead
take a risk-based approach by, for example, requiring clear segregation of resources and
transparent default waterfalls tailored to each service line.
* * *
Polymarket US and Polymarket Clearing appreciate the CFTC’s consideration of our
comments. If you have questions or would like to discuss these comments further, please
reach out to [email protected].
Sincerely,
Justin Hertzberg
Chief Executive Officer
QCX LLC
QC Clearing LLC
___________________________________
CFTC, Request for Comment on the Direct Clearing of Derivatives by Retail Investors (Dec. 18,
2025), https://www.cftc.gov/media/12861/DerivativesRetailInvestors_RFC121725/download.
2 For purposes of this comment letter, “retail participants” refers to market participants who are not
“eligible contract participants” as defined in 7 U.S.C. § 1a(18).
3 See Section 3(b) of the Commodity Exchange Act (CEA), 7 U.S.C. § 5(b), setting forth the
purpose of the CEA; see also Chairman Selig, America’s Financial Markets are ready for a
Golden Age (Jan. 20, 2026), https://www.cftc.gov/PressRoom/SpeechesTestimony/
seligstatement012026 (noting a desire to avoid regulation that would send “many of the most
enterprising businesses offshore”).
4 CFTC, Order of Registration for QC Clearing LLC (Dec. 16, 2024),
https://www.cftc.gov/media/11681/download?attachment; CFTC, Order of Designation for QCX
LLC (July, 9, 2025),
https://www.cftc.gov/sites/default/files/filings/documents/2025/orgdcmqcexorderofd250709.pdf.
5 CFTC, Amended Order of Registration for QCX LLC (Nov. 24, 2025),
https://www.cftc.gov/media/12806/Polymarket%20US%20Amended%20Order%20of%20Design
ation/download.
6 Because Polymarket’s current business model in the United States is limited to facilitating trading
in fully collateralized positions, this letter is limited in scope to direct clearing of fully
collateralized derivatives by retail participants. Polymarket may, in the future, seek to expand its
business to offering and clearing margined derivative contracts in the United States, at which point
we would engage further with the CFTC regarding appropriate regulation.
7 See, e.g., Margins, debt capacity, and systemic risk, BIS Working Papers No. 1121 (Sept. 2023)
(“The propagation of systemic risk . . . can be routed through . . . fluctuations in leverage that
magnify changes in prices and intermediation activity.”).
8 See Reporting and Information Requirements for Derivatives Clearing Organizations, Final Rule,
88 Fed. Reg. 53, 664 (Aug. 8, 2023) (“It is the Commission's view that [the enumerated DCO]
requirements are unnecessary for clearing members that clear only fully collateralized positions,
as fully collateralized positions do not expose the DCO to any credit or default risk stemming
from the inability of a clearing member to meet a margin call or a call for additional capital.”)
Legislative history also supports the Commission’s view that margined products may present
higher risk. See, e.g., S. Rept. 111-175 (111th Cong. 2d Sess. Apr. 30, 2010) (“Although over-thecounter derivatives can be used to manage risk and increase liquidity, they also increase leverage
in the financial system; traders can take large speculative positions on a relatively small capital
base because there are no regulatory requirements for margin or capital. The ability of derivatives
to hide leverage was evident in problems faced by financial companies such as Bear Stearns and
Lehman…”).
9 17 C.F.R. §§ 39.11(c)(1), 39.11(e)(1)(iv), 39.12(a)(5)(v).
10 17 C.F.R. § 39.13(h)(3)(iii).
11 17 C.F.R. § 39.13(h)(5)(iii).
12 17 C.F.R. § 39.16(e).
13 17 C.F.R. § 39.19(c)(1)(ii).
14 17 C.F.R. §§ 39.21(c)(3)-(4), (c)(7).
15 17 C.F.R. § 39.24(d).
16 For example, Congress, through the Dodd-Frank Act, amended Section 5(b)(c)(2) of the CEA,
which sets forth the core principles generally applicable to DCOs, to grant the Commission
enhanced rulemaking authority to adopt additional requirements applicable to “systemically
important” DCOs in light of the heightened risk profile presented by these entities. See DoddFrank Wall Street Reform and Consumer Protection Act § 805, Public Law 111–203, 124 Stat.
1376 (2010). Pursuant to this statutory authority, the Commission adopted additional standards
for compliance with the DCO core principles under subpart C of Part 39 of the Commission’s
Regulations. 17 C.F.R. Part 39 Subpart C. More generally, section 5b of the CEA requires DCOs
to comply with the core principles laid out therein and “any requirement that the Commission
may impose by rule or regulation pursuant to [CEA] section 8a(5)”, which in turn authorizes the
Commission to “make and promulgate such rules and regulations as, in the judgment of the
Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of
the purposes” of the CEA. 7 U.S.C. §§ 7a-1(c)(2)(A); 12a(5).
17 For example, the CEA’s definition of DCO includes entities that enable “each party” to a
transaction to substitute, through novation or otherwise, the credit of the DCO for the credit of the
parties. 7 U.S.C. § 1a(15)(A)(i). Likewise, the Part 39 reporting requirements distinguish between
FCM clearing members of a DCO and non-FCM clearing members. 17 C.F.R. § 39.12(a)(5)(v).
The CEA and Commission regulations thus clearly permit traders themselves as “parties” to
derivatives transactions to clear through a DCO.
18 While valuable in certain respects, FCM intermediation is not a panacea to risks in the derivatives
markets (and, indeed, may introduce new risks). See, e.g., Cong. Rsch. Serv., The MF Global
Bankruptcy, Missing Customer Funds, and Proposals for Reform (Aug. 1, 2013),
https://www.congress.gov/crs-product/R42091.
19 17 C.F.R. § 42.2.
20 31 C.F.R. § 1010.100(t)(8).
21 See, e.g., Order of Registration for Cboe Clear Digital, LLC, (June 5, 2023),
https://www.cftc.gov/media/8686/Cboe%20Clear%20Digital%20LLCAmended%20Order%20of%20DCO%20Registration%206-5-2023/download.
