Key Highlights
- The CFTC published an advance notice of proposed rulemaking, covering leveraged retail crypto transactions under Section 2(c)(2)(D) of the Commodity Exchange Act.
- The notice outlines two proposed frameworks: Regulation CTX for key definitions and Regulation CAM for a new category of crypto asset market registration.
- Retail leverage could be offered only through a futures commission merchant (FCM) or a bank sponsored by an FCM.
The Commodity Futures Trading Commission (CFTC) has opened public comment on a potential federal framework for leveraged retail crypto trading.
The agency published an advance notice of proposed rulemaking on October 5 (Release No. 9307-26, RIN 3038-AF80), asking for input on how Section 2(c)(2)(D) of the Commodity Exchange Act (CEA) should apply to crypto asset transactions. The notice is not a proposed or final rule. Instead, the CFTC is seeking feedback before deciding whether and how to proceed with future rulemaking.
Selig links proposal to market structure push
CFTC Chairman Michael Selig linked the notice to the agency’s work on digital-asset market structure. “Today’s action is a critical step in the CFTC’s ongoing efforts to ensure America remains the crypto capital of the world,” Selig said in the agency’s announcement.
He said the proposed rules should provide “clarity, certainty, and consumer protections” and pointed to President Donald Trump’s directive to develop a federal crypto market structure using existing CFTC authorities.
Selig also cited FTX as an example of conduct the agency wants its rules to address earlier. He said the Commission would seek regulations designed to prevent fraudulent schemes rather than rely only on enforcement after the fact.
Regulation CAM would create a crypto exchange category
The notice proposes Regulation CTX for crypto asset transactions and Regulation CAM for exchanges dealing with those transactions. CAM would establish a tailored version of a designated contract market registration for crypto assets. Existing registered exchanges could continue listing qualifying crypto assets under their current registration.
Under the proposed approach, retail CTX transactions involving leverage would have to go through a futures commission merchant. Retail financing could only come from an FCM or a bank sponsored by an FCM, with the relevant arrangements included in exchange rules.
The CFTC is also asking whether platforms with limited trading volume or limited leveraged exposure should qualify for an exemption.
The notice raises additional questions about platforms that combine trading, clearing and custody, including whether those arrangements could create conflicts of interest.
CFTC narrows proposed definition of actual delivery
Regulation CTX also addresses when a crypto transaction is considered to have resulted in “actual delivery.” Under Section 2(c)(2)(D), a transaction involving actual delivery within 28 days falls outside the relevant retail-commodity framework.
The CFTC relies on the Ninth Circuit’s 2019 Monex decision and says actual delivery requires “real and immediate possession.” For crypto assets, the agency says this could mean the customer must have control of the private keys.
Crypto recorded only on an exchange’s internal books would not qualify as actual delivery under the CFTC’s preliminary view.
That could bring some fully paid crypto purchases within the proposed rules even when the customer did not use leverage. The notice also asks how actual delivery should apply to staking and governance rights, which may require customers to have direct control over those rights.
The CFTC preliminarily views on-chain protocol trades as generally resulting in actual delivery. It also says the existence of a lien does not necessarily prevent delivery from occurring.
Notice raises questions on custody, leverage, and trading
The CFTC included a broad set of questions for public comment covering custody, customer protection, and market operations. Among other issues, the agency asks about rehypothecation, protection of customer assets if an FCM becomes insolvent, and proof-of-reserves audits.
It also seeks input on 24/7 trading, blockchain outages and forks, position limits, margin requirements, and whether NFTs could fall within its jurisdiction. The notice asks whether the proposed approach would leave exchanges with a commercially viable way to continue operating under state licensing regimes.
The notice also discusses the CFTC’s approach to crypto enforcement between 2021 and 2024, citing cases involving Kraken, Ooki DAO, and Uniswap Labs. It references former Commissioner Summer Mersinger’s criticism of relying on enforcement actions instead of formal rules. Selig previously said that “regulation by enforcement is dead.”
Recent CFTC actions extend beyond market structure
The latest notice follows other CFTC actions involving crypto markets and products.
On September 17, CFTC staff expanded no-action relief previously provided to Phantom to other eligible crypto trading software providers, including those supporting self-custodial crypto wallets. The position broadened relief first issued to Phantom in March.
On September 30, the agency sent proposed event-contract swap rules to the White House for review. The proposal seeks to define event contracts as swaps while excluding casino-style gambling products from the swap definition.
Meanwhile, the Securities and Exchange Commission (SEC) proposed its own Regulation Crypto Assets framework in August, while the CFTC issued a separate proposal on conflicts and affiliations on August 6.
The CFTC said its latest notice is intended to complement the SEC’s work by establishing federal rules for crypto assets that trade in secondary markets on the commodities side.
Comments are due within 60 days after the notice is published in the Federal Register and will be posted on Regulations.gov.
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