TLDR
- The CFTC published an Advanced Notice of Proposed Rulemaking on October 5 covering leveraged and margined retail crypto trades.
- Qualifying exchanges could opt into federal oversight under a new category called “crypto asset markets.”
- Proof of reserves, anti-manipulation controls and customer protections are expected requirements.
- The move follows a 49-50 Senate procedural vote in September that stalled the CLARITY Act.
- Advocacy group Better Markets says the CFTC is the “wrong agency” to regulate retail crypto.
The U.S. Commodity Futures Trading Commission (CFTC) has started work on federal rules for some crypto trading platforms. The step comes after Congress failed to pass broader crypto market structure legislation.
On October 5, the agency published an Advanced Notice of Proposed Rulemaking. It covers leveraged, margined and financed retail crypto transactions under the Commodity Exchange Act.
The CFTC said it wants rules built specifically for crypto markets. It plans to use authority it already holds under current law.
What the CFTC Proposal Covers
The proposal does not place the entire U.S. spot crypto market under CFTC supervision. It focuses on retail trades covered by Section 2(c)(2)(D) of the Commodity Exchange Act, which the agency calls crypto asset transactions.
The CFTC plans to create a new platform category called crypto asset markets. Exchanges that meet the requirements could opt into federal oversight instead of relying only on state-by-state licenses.
Participating platforms would likely face market manipulation controls, proof-of-reserves requirements and customer protection rules. Registered futures commission merchants would handle customer transactions.
The agency has not set a single leverage limit. Each leverage arrangement would need CFTC clearance, so the regulator could review leverage by product or market.
Key details on reserves are still open. These include which assets count, how customer liabilities are calculated and whether the data is independently checked.
The CLARITY Act failed to advance in the Senate in September after a 49-50 procedural vote. That bill would have given the CFTC broader authority over spot digital commodity trading.
CFTC Chairman Michael Selig said the CFTC and the Securities and Exchange Commission (SEC) already have enough authority to begin building parts of a federal crypto framework.
The SEC has also moved ahead. On Thursday, it proposed easing some custody rules for investment advisers, allowed limited tokenized U.S. stock trading and issued new guidance on how securities laws apply to crypto.
Rules made by an agency can be challenged in federal court. A future administration could also revise or reverse them.
Critics Question CFTC Oversight
Better Markets, a nonprofit financial reform group, criticized the plan on October 6. Benjamin Schiffrin, its director of securities policy, said the CFTC lacks an investor protection mandate.
“Because the CFTC’s rules lack the protections that apply when investors trade securities regulated by the SEC, the CFTC is the wrong agency to regulate transactions involving crypto assets by retail customers,” Schiffrin said.
He argued the legal authority the CFTC cites was first written to address fraud in leveraged precious-metals trading. He also said the framework could allow affiliations between market participants like those linked to the collapse of FTX.
Schiffrin questioned Selig’s goal of making the U.S. the crypto capital of the world. He said crypto still lacks a real-world use case.
Nate Geraci, president of NovaDius Wealth Management, pushed back. He said the industry wants clear rules and that the CFTC and SEC may need to provide them if Congress does not.
The notice is not a final rule. It will be open for public comment for 60 days after it is published in the Federal Register.
The CFTC will then decide whether to issue a formal proposed rule. That proposal would likely receive another public comment period before any final rule is adopted.
