CFTC seeks comment on Regulation CTX, CAM for crypto exchanges offering leverage
In brief
- CFTC published an advance notice of proposed rulemaking, an early step before formal rules.
- Regulation CTX and Regulation CAM proposed as two linked frameworks.
- Leverage offerings could pull fully paid trades held on exchange books under CFTC oversight.
- Exchanges without leverage could keep operating under state money transmitter licenses.
- 60-day public comment period begins once the notice appears in the Federal Register.
Two frameworks, one trigger
The notice outlines two linked frameworks: Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM). Both rest on a 2010 Dodd-Frank provision requiring retail commodity trades offered with leverage, margin or financing to occur on a CFTC-registered exchange.
Leverage is the trigger.
Under Regulation CTX, merely offering leverage could bring fully paid trades under CFTC oversight if the purchased crypto sits on the exchange's internal books. Those trades escape federal oversight only through "actual delivery," which the CFTC suggested could require customers to hold their own private keys (that's a suggestion in the notice, not an adopted requirement). The agency said on-chain trading protocols that send tokens directly to users' wallets would usually meet that bar.
A new license for crypto markets
Regulation CAM would create a "crypto asset market" license, a tailored version of the designated contract market status held by futures exchanges. Trades would run through futures commission merchants, and leverage could come only from those brokers or banks they sponsor. Exchanges could also register as their own broker and clearinghouse.
The CFTC is weighing proof-of-reserves requirements and standards against listing tokens prone to manipulation. Neither has been adopted. Exchanges that don't offer leverage could keep operating under state money transmitter licenses.
CFTC Chairman Michael Selig said the rules are "designed to prevent, rather than only prosecute after the fact, fraudulent schemes such as FTX."
The notice itself described the agency's Biden-era cases against Kraken, Ooki DAO and Uniswap as "regulation by enforcement."
How the CFTC got here
The CFTC sent the framework to the White House for review in September, days after the Clarity Act failed in the Senate, according to Decrypt. That bill would have set ground rules for most U.S. crypto activity. Selig had said in August that the agency would write its own crypto rules if Congress came up short.
It's now doing that.
The CFTC has also sent new prediction market rules to the White House, while the SEC has moved on a parallel track (it proposed Regulation Crypto Assets in August and unveiled an innovation exemption for tokenized stocks).
Frequently asked questions
What triggers CFTC oversight of a crypto exchange under the proposal?
Leverage is the trigger. The plan rests on a 2010 Dodd-Frank provision requiring retail commodity trades offered with leverage, margin or financing to occur on a CFTC-registered exchange. Under Regulation CTX, merely offering leverage could bring fully paid trades under oversight if purchased crypto sits on the exchange's internal books.
How can crypto trades avoid CFTC oversight under Regulation CTX?
Trades escape federal oversight only through "actual delivery," which the CFTC suggested could require customers to hold their private keys. The agency said on-chain trading protocols that send tokens directly to users' wallets would usually meet that bar.
What happens to crypto exchanges that don't offer leverage?
According to the CFTC notice, as reported by Decrypt, exchanges that don't offer leverage could keep operating under state money transmitter licenses rather than seeking the new federal crypto asset market license.
