CFTC Seeks Comment on First Crypto Rules for Leveraged Trading, Leaving Spot Markets Out

The Commodity Futures Trading Commission (CFTC) on Monday published an advance notice of proposed rulemaking for two crypto rules, Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM). The public has 60 days to comment once the notice appears in the Federal Register.

The proposals apply to retail crypto trades done on a margined, leveraged or financed basis, which the Commodity Exchange Act already requires to run through CFTC-registered exchanges. They do not reach ordinary spot buying and selling of tokens such as bitcoin and ether.

“Today’s action is a critical step in the CFTC’s ongoing efforts to ensure America remains the crypto capital of the world,” CFTC Chairman Michael Selig said.

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In prepared remarks for Fordham Law’s Blockchain Regulatory Symposium in New York, Selig sorted crypto venues into three tiers. Plain spot exchanges answer to the CFTC on fraud and manipulation but otherwise generally fall under state money transmission laws. Venues adding margined or leveraged retail trading must register with the agency, as must those offering perpetual futures and other derivatives.

The proposals target that middle tier. Designated contract markets (DCMs) could offer these trades under tailored rules, while new entrants could register as a full DCM or as a narrower subcategory called a crypto asset market, or CAM.

“I want to underscore that this is a federal option for crypto asset exchanges,” Selig said.

Requirements under consideration include a proof-of-reserves obligation for exchanges that pool customer assets in omnibus accounts, mandatory intermediation by futures commission merchants, which brings in Bank Secrecy Act anti-money laundering rules, and listing reviews that weigh token concentration, lock-ups and vesting schedules. Moving a crypto asset to a user’s own non-custodial wallet within 28 days would generally count as “actual delivery,” keeping those trades off the exchange requirement.

Selig also said the CFTC is exploring a policy, outside the scope of these proposals, for developers who publish software without taking orders or holding customer assets. “A person should not have to register as an introducing broker simply because that person shipped code,” he said.

The proposals come after the Clarity Act stalled in a Senate procedural vote on Sept. 15. Two days later, the CFTC sent the rulemaking to the White House for review.

Unlike that bill, the CFTC’s rules would not force crypto trading onto CFTC-registered platforms, Selig wrote in a Wall Street Journal op-ed. “We don’t have the authority to impose such a requirement without congressional action,” he wrote.

“We haven’t solved every problem, nor can agency action substitute indefinitely for a statutory framework passed by Congress, but we must do what we can,” Selig wrote.

Related Listen: Crypto’s Clarity Act Collapses. Two Days Later, the SEC Introduces Its Innovation Exemption

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