“As If”: The CFTC Proposes New Rules for Leveraged, Margined, or Financed Crypto Trading

In the wake of the CLARITY Act’s failure to progress in Congress, the CFTC proposed on Monday a new, custom-designed framework to permit CFTC registrants to offer leveraged trading of crypto to the American public. If adopted, the proposal would also give the CFTC oversight over many spot transactions, representing the CFTC’s push to broaden its authority over spot markets and potentially displace state money transmission regulators’ oversight of crypto exchanges.  

Section 2(c)(2)(D) of the Commodity Exchange Act provides that when crypto trading is offered on a leveraged, margined, or financed basis, the product is treated “as if” it were a futures contract, meaning that it can be offered only on registered futures markets through licensed brokers. But for years, uncertainty persisted regarding how registrants could offer these “Retail Commodity Transactions”. The CFTC hopes to change that. If adopted, the proposed rules will change how exchanges, brokers, and market participants will trade these crypto products in the U.S. Further, the proposed rules would give more oversight of certain spot transactions to the CFTC, potentially obviating the need for spot market exchanges to register with state financial services regulators in the states in which they do business or have customers.