CFTC Weighs Federal Framework for Leveraged Retail Crypto Trades

The Commodity Futures Trading Commission is seeking comment on a possible framework for leveraged retail crypto trades, potentially creating a federal registration path for exchanges serving U.S. customers.

The agency issued an advance notice of proposed rulemaking Oct. 5 covering retail “crypto asset transactions,” or CTXs, under Section 2(c)(2)(D) of the Commodity Exchange Act. The notice is not a final rule, registration approval or binding compliance regime.

The CFTC is considering a crypto asset market, or CAM, as a subcategory of designated contract markets. The framework would focus on transactions in which a platform or another party provides margin, leverage or financing.

A fully paid spot purchase would generally remain separate from a financed retail trade. Ordinary spot exchanges would generally remain subject to the CFTC’s anti-fraud and anti-manipulation authority, as well as state money-transmission laws.

Exchanges offering futures, options or swaps would remain under the existing designated contract market framework rather than the proposed CAM framework. The agency is also considering futures commission merchant intermediation for CTXs, including rules covering customer accounts, disclosures, capital and segregation of customer property.

Potential crypto-specific listing and surveillance requirements could address token distribution, concentration, lockups, vesting, programmed issuance and buybacks. The proposal also contemplates proof-of-reserves requirements for exchanges holding customer property in omnibus accounts.

A central issue is whether customers receive actual delivery of the crypto asset. The CFTC is considering an interpretation under which delivery to an external, noncustodial wallet within 28 days would generally satisfy the actual-delivery exception.

Under the agency’s 2020 guidance, customers must obtain possession and control of the entire purchased amount, including any financed portion, and be able to use it freely away from the execution venue within 28 days. The offeror and counterparty seller cannot retain an interest, legal right or control over the asset after that period.

A balance shown only on an exchange ledger does not necessarily establish actual delivery under that interpretation.

The proposal would not automatically require every crypto exchange or spot transaction to move onto a CFTC-registered platform. It also does not set final leverage limits, identify approved exchanges or establish a compliance date.

CFTC Chairman Michael S. Selig called the action “a critical step in the CFTC’s ongoing efforts to ensure America remains the crypto capital of the world.” He added that “only Congress has the authority to mandate that all crypto asset exchanges register with the Commission.”

The initiative continues earlier CFTC coverage focused on perpetual-contract rules. Comments are due within 60 days after the advance notice is published in the Federal Register.