CFTC Eyes New Crypto Market Rules

The CFTC is moving to build a new federal rulebook for crypto markets, proposing purpose-built regulations that could bring leveraged retail crypto trading.

The Commodity Futures Trading Commission (CFTC) is set to establish a fresh set of federal regulations for crypto markets in the wake of Congress’ failure to pass far-reaching crypto market structure legislation.

The derivatives regulator has released an Advanced Notice of Proposed Rulemaking (ANPRM) on Sunday, inviting public comments on two proposed regulatory regimes it plans to introduce – Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM).

This is part of CFTC’s effort to establish crypto-specific regulations with its current authority under the Commodity Exchange Act.

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

However, it’s important to note that this is merely the opening step in the regulatory process. CFTC has yet to enact CTX and CAM rules. It’s inviting comments from the industry that may eventually shape formal proposed regulations. Comments will be open for 60 days after the notice is published in the Federal Register.

For now, the immediate concern of the CFTC is not conventional spot trading of cryptocurrency but retail trading involving margin, leverage, or other financing.

Selig outlined a vision of the market with a three-tier structure.

The first tier would include conventional spot exchanges. For these, generally the status quo of state money transmitter regimes will continue to apply. However, the CFTC will still have authority to act against fraud and market manipulation.

The second tier will include exchanges enabling retail customers to transact cryptocurrency with margin/leverage/financing. The regulator refers to such transactions as CTXs. This will be subject to new rules.

Finally, the third tier includes exchanges that facilitate futures/perpetuals/derivatives, for which the designated contract market framework of the CFTC already applies.

The CFTC’s move to establish crypto rules comes just weeks after the Senate’s failure to pass the Clarity Act, the most recent legislative effort by Congress to introduce a comprehensive digital asset regime.

The Clarity Act could not pass the threshold of 60 votes to proceed. Four Republicans joined Democrats in voting down the bill.

The legislation would have provided the CFTC with a wider statutory role over crypto markets.