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Spot Risk Disclosure Clearing

RISK DISCLOSURE STATEMENT 
SPOT DIGITAL ASSET MARGIN PROGRAM

NinjaTrader Clearing, LLC
NFA ID# 0309379
222 North LaSalle Street, Suite 1450, Chicago, Illinois 60601

 

THIS RISK DISCLOSURE STATEMENT IS FURNISHED TO YOU BY NINJATRADER CLEARING, LLC (“NINJATRADER”) IN CONNECTION WITH YOUR PARTICIPATION IN THE SPOT DIGITAL ASSET MARGIN PROGRAM (THE “PROGRAM”). YOU SHOULD CAREFULLY CONSIDER WHETHER PARTICIPATION IN THE PROGRAM IS APPROPRIATE FOR YOU IN LIGHT OF YOUR EXPERIENCE, FINANCIAL CONDITION, AND INVESTMENT OBJECTIVES. YOU SHOULD READ THIS DOCUMENT AND ALL PROGRAM DOCUMENTS IN THEIR ENTIRETY BEFORE ENTERING INTO ANY MARGIN TRANSACTION.

I. DESCRIPTION OF THE PROGRAM

The Program allows you to borrow funds to trade leveraged spot digital asset transactions on Bitnomial Exchange, LLC, a Commodity Futures Trading Commission (“CFTC”)-registered designated contract market (“DCM”). The Program involves the following entities, all of which are affiliated under common ownership by Payward, Inc. (d/b/a Kraken):

Payward Accredited LLC (“PAL”) is the lender. PAL extends margin credit to you under the Margin Loan Agreement. NinjaTrader is not the lender and does not extend credit to you under the Program.

Kraken Derivatives US d/b/a NinjaTrader Clearing, LLC (“NinjaTrader”) is a CFTC-registered Futures Commission Merchant (“FCM”) and a member of the National Futures Association (“NFA”). NinjaTrader carries your Trading Account, holds your Encumbered Assets (as defined below) in customer segregated accounts, executes liquidations when directed under the Control Agreement, and remits liquidation proceeds to PAL.

Payward Interactive, Inc. (“PWI”) is an affiliated entity that holds certain Collateral Assets (as defined below) in your Kraken account under the applicable Kraken terms of service.

Bitnomial Exchange, LLC (“Bitnomial”) is a CFTC-registered DCM affiliated with NinjaTrader and PAL on which your leveraged spot digital asset transactions are executed and cleared.

Payward Oceanic, Ltd (“Payward Oceanic”) is an affiliated entity that acts as a market maker and liquidity provider on Bitnomial Exchange and maintains a noncustomer proprietary (house) account at NinjaTrader. Payward Oceanic may take the other side of your trades, including liquidation trades.

Payward Financial, Inc. d/b/a Kraken Financial (“Kraken Financial”) is a Wyoming-chartered special purpose depository institution (“SPDI”) affiliated with NinjaTrader under common ownership. Kraken Financial serves as the depository institution at which NinjaTrader holds customer segregated digital assets, including Encumbered Assets under the Program. Although Encumbered Assets are held in CFTC-regulated customer segregated accounts, the digital assets are physically custodied at Kraken Financial, an affiliated institution.

II. DUAL-CUSTODY COLLATERAL STRUCTURE AND ASSOCIATED RISKS

Your total program collateral is held across two separate custodians that provide materially different levels of regulatory protection:

  1. Encumbered Assets at NinjaTrader. Encumbered Assets are the digital assets and fiat currency credited to your NinjaTrader Trading Account that are attributable to Spot Transactions and that are subject to PAL’s security interest under the Control Agreement. Encumbered Assets are held in CFTC-regulated customer segregated accounts pursuant to Section 4d of the Commodity Exchange Act (“CEA”) and CFTC Regulation 1.20. The digital assets constituting Encumbered Assets are physically custodied at Kraken Financial, a Wyoming-chartered special purpose depository institution affiliated with NinjaTrader under common ownership. While CFTC segregation requirements are designed to protect customer assets in the event of the FCM’s insolvency, the recovery of digital assets from an insolvent depository involves a separate set of risks, and those risks may be heightened when the depository is affiliated with the FCM. NinjaTrader has performed due diligence on Kraken Financial in accordance with NFA requirements for the selection of depositories.
  2. Collateral Assets at PWI. Collateral Assets are additional collateral held in your Kraken account at PWI. COLLATERAL ASSETS HELD AT PWI ARE NOT HELD IN A CFTC-REGULATED CUSTOMER SEGREGATED ACCOUNT AND DO NOT RECEIVE THE CUSTOMER FUND PROTECTIONS APPLICABLE TO ENCUMBERED ASSETS HELD AT NINJATRADER. Collateral Assets at PWI are held under the applicable Kraken terms of service and are subject to the risks of PWI’s insolvency. In the event of PWI’s insolvency, you may lose some or all of your Collateral Assets at PWI regardless of the status of your NinjaTrader account.
  3. Total Loss May Exceed NinjaTrader Account Value. Because a portion of your total program collateral may be held at PWI outside of CFTC-regulated segregation, your total loss under the Program may exceed the value of assets held in your NinjaTrader account.

III. LIQUIDATION RISKS

  1. Liquidation Without Notice. If you fail to maintain the margin level required under the Program, PAL may direct NinjaTrader to liquidate some or all of your Encumbered Assets immediately, without any prior notice or margin call to you. Neither PAL nor NinjaTrader is required to provide a margin call before liquidating your positions. Any margin call or notification provided on a discretionary basis does not create an obligation to provide such notice in the future.
  2. Affiliated Counterparty. NinjaTrader has sole discretion to select the venue for the liquidation of your positions. Your positions may be liquidated through an “Internalizer,” which may be Payward Oceanic (an affiliated market maker and liquidity provider that maintains a noncustomer proprietary account at NinjaTrader), PAL, NinjaTrader, or any other affiliate acting as the counterparty to your trade. The affiliate acting as counterparty may profit from the spread or price differential on the liquidation transaction.
  3. No Duty to Obtain Best Price. Neither PAL nor NinjaTrader is obligated to liquidate your positions at the best available price. Liquidation prices may differ materially from prevailing market prices or from the reference index used by the Program. Liquidation may occur in spot markets, through an Internalizer, or through other venues, and may not occur on the DCM.
  4. Deficiency Liability. If the proceeds from the liquidation of your Encumbered Assets, together with any Collateral Assets applied by PAL, are not sufficient to satisfy all amounts you owe under the Margin Loan Agreement — including loan principal, interest, fees, and Liquidation Charges — you are personally liable for the remaining deficiency. This deficiency obligation is unconditional and is not limited to, or conditioned upon, PAL’s ability to recover Collateral Assets from PWI. In the event of PWI’s insolvency, receivership, or inability to honor transfer instructions, you remain fully liable for any resulting deficiency.

IV. CONFLICTS OF INTEREST

The entities involved in the Program are separate but affiliated entities under common ownership by Payward, Inc. (d/b/a Kraken). These affiliated relationships create the following conflicts of interest, among others:

  1. NinjaTrader Acts as Commodity Intermediary for an Affiliate. NinjaTrader’s role under the Control Agreement is to hold your Encumbered Assets and execute liquidations on behalf of PAL, an affiliated lender. NinjaTrader’s primary regulatory obligation as an FCM, however, is to you, the customer. These obligations may conflict.
  2. Affiliated Exchange. Your leveraged spot digital asset transactions are executed on Bitnomial Exchange, which is affiliated with NinjaTrader and PAL under common ownership.
  3. Affiliated Liquidation Counterparty. When your positions are liquidated, the entity purchasing your assets may be Payward Oceanic, PAL, NinjaTrader, or another Kraken affiliate. Payward Oceanic acts as a market maker and liquidity provider on Bitnomial Exchange and maintains a noncustomer proprietary account at NinjaTrader. The affiliate acting as counterparty has an economic interest in the liquidation price that is adverse to yours.
  4. NinjaTrader Carries the Affiliated Market Maker’s Account. NinjaTrader carries both your customer account and the noncustomer proprietary (house) account of Payward Oceanic, the entity that may be on the other side of your trades. NinjaTrader has financial exposure to Payward Oceanic through margin, settlement, and potential trading losses in that house account. A significant loss by Payward Oceanic could affect NinjaTrader’s financial condition.
  5. Affiliated Fee-Sharing. Liquidation Charges and other program fees may be retained by or allocated among PAL, NinjaTrader, and their affiliates, including any affiliate acting as Internalizer.
  6. Customer Segregated Digital Assets Are Held at an Affiliated Depository. Kraken Financial, a Wyoming-chartered SPDI affiliated with NinjaTrader under common ownership, serves as the depository at which NinjaTrader holds customer segregated digital assets, including your Encumbered Assets. NinjaTrader has an inherent conflict of interest in selecting and evaluating an affiliated institution as the depository for customer segregated assets. If Kraken Financial were to become insolvent, enter receivership, or experience a regulatory action, the recovery of your segregated digital assets could be delayed or impaired, notwithstanding the protections afforded by CFTC segregation requirements.

V. ADDITIONAL MATERIAL RISKS

  1. Volatility and Leverage. Digital asset prices are highly volatile. The use of leverage amplifies both gains and losses. A relatively small adverse price movement may result in a total loss of your collateral and a deficiency for which you are personally liable.
  2. PAL Is Not a Bank. Your margin loan from PAL is not a bank deposit. PAL is not a bank and is not insured by the Federal Deposit Insurance Corporation or any other government agency. If PAL becomes insolvent or is subject to regulatory action, the Program may be disrupted and your positions may be affected.
  3. Regulatory Uncertainty. The regulatory treatment of spot digital assets and digital asset lending products is evolving. Changes in applicable law, regulation, or regulatory interpretation could affect the Program, the products traded, or the protections available to you. Regulatory developments may require modification, suspension, or termination of the Program.
  4. Technology and Operational Risks. System failures, network outages, cyberattacks, or other technical disruptions could prevent you from accessing or managing your positions, delay liquidation execution, or result in losses. Neither NinjaTrader nor PAL guarantees uninterrupted access to the Program or to the trading systems of Bitnomial Exchange.
  5. Forks and Airdrops. If a digital asset held as collateral undergoes a fork or airdrop, you may be required to return to PAL any new tokens received that were enabled by PAL’s margin extension, as described in the Margin Loan Agreement.

VI. PROGRAM DOCUMENTS

This Risk Disclosure Statement is a summary of material risks and does not contain the complete terms of the Program. The complete terms are set forth in the Program documents, including the Margin Trading Addendum, Margin Loan Agreement, the Control Agreement, and related disclosures/schedules, which you should read in their entirety before entering into any margin transaction.

VII. QUESTIONS AND COMPLAINTS

If you have questions about the Program or the risks described in this disclosure, you may contact NinjaTrader at (312) 341-9090 or through the contact information provided in the Customer Agreement. If you wish to file a complaint, you may also contact the National Futures Association at (800) 621-3570 or www.nfa.futures.org, or the Commodity Futures Trading Commission at (866) 366-2382 or www.cftc.gov.