The CFTC plans to launch crypto asset rules under its own authority, temporarily excluding spot tran

The U.S. Commodity Futures Trading Commission (CFTC) issued preliminary rules for the regulation of crypto exchanges, but the core focus is on its "unfinished business"

On October 5, the U.S. Commodity Futures Trading Commission (CFTC) released early rulemaking draft on trading in crypto assets, marking an important step in regulating crypto exchanges. However, what really deserves attention is not the measures that have been proposed, but the areas that the agency deliberately avoids.

The CFTC used its existing legal authority to propose new rules for leveraged trading and margin trading, but deliberately left out of touching the larger spot trading market due to authority limitations.

Leveraging is included in regulation, and the spot market is temporarily sidelined.

The committee issued a document titled "Prior Notice of Proposed Rule Making", which involves two interrelated measures: "Regulation of Cryptographic Asset Trading"(CTX) and "Regulation of Cryptographic Asset Markets"(CAM).

CTX clearly stipulates that transactions over which the CFTC has jurisdiction refer to retail activities conducted using leverage, margin or borrowed funds. CAM aims to establish a new exchange licensing system to carry such retail activities. The licensing system is based on the existing designated contract market (DCM), derivatives clearing organization (DCO) and futures commission trader (FCM) categories, and does not give itself new legal powers. At the same time, the license is also a simplified replica of the designated contract market registration system currently supervised by the CFTC.

According to the Commodity Exchange Law, retail commodity transactions conducted on a margin basis are subject to it. CTX relies mainly on section 2(c)(2)(D) of the act. Therefore, the new rules have no impact on ordinary spot trading, and exchanges that only provide ordinary spot trading do not need to register.

Why Selig chose to act outside Congress

The background of this series of proposed new regulations is that the CLARITY Act is stalled in Congress. On September 15, the Senate voted 49 - 50 to fail the process of ending debate, and the bill failed to pass because it required 60 votes to move forward. The CLARITY Act seeks to separate jurisdiction between the CFTC and the U.S. Securities and Exchange Commission (SEC) and create statutory registration categories for spot exchanges, brokers and dealers.

After the CLARITY Act failed, CFTC Chairman Mike Selig chose to take unilateral action.

Selig said: "These rules will provide a path for crypto asset exchanges to operate under the unified national-level supervision of the CFTC, based on the same statutory authority used for law enforcement supervision by the previous administration." He further emphasized that its main goal was to prevent fraud rather than prosecute ex post facto.

Selig also mentioned creating a safer environment for software developers, saying: "One should not need to register as an introducing broker just because you write and send code."

Persisting challenges

Although the new rules are cleverly designed, they are also fragile. One shortcoming is that the CFTC cannot go beyond anti-fraud and anti-manipulation enforcement. This means that the committee cannot establish a licensing system for spot exchanges alone.

In addition, no matter what rules the agency formulates, they can only last until a new government comes to power and overthrows them. For example, the Fifth Circuit Court of Appeals struck down a number of SEC encryption rules that exceeded legal authority in the Biden administration.

JPMorgan pointed out that because these rules could easily be repealed by future committees, the CFTC's approach is not as durable as legislation passed by Congress.

The CFTC's efforts are part of a four-agency coordinated action jointly promoted by the Treasury, the SEC and the Federal Reserve, with each party setting an effective date of January 18, 2027. This coordination itself carries risks: On October 2, the SEC lost Commissioner Hester Peirce, making it necessary for Chairman Paul Atkins and Commissioner Mark Uyeda to finalize the SEC's portion by consensus.

Once the notice is published in the Federal Register, the CFTC's comment call period will last for 60 days. Even so, the agency must issue formal proposed and final rules before the exchange faces any binding requirements.