CFTC Moves To Set Rules For Leveraged Crypto Trading In The U.S.

Selig’s plan has two key pieces. Regulation Crypto Asset Transactions, or CTX, would define which retail crypto purchases involving leverage, margin or financing fall under the CFTC’s authority. Regulation Crypto Asset Markets, or CAM, would create a tailored federal regime for exchanges that want to offer those trades, adapting the CFTC’s existing exchange rules to crypto rather than simply applying the traditional futures rulebook.

Unlike the broader CLARITY Act, which would establish market structure rules for crypto but recently failed to advance in the Senate, the framework would not require ordinary spot crypto trading to move onto CFTC-regulated venues. Exchanges that choose not to offer leveraged or financed retail transactions could continue operating under state spot-market rules (i.e. spot trading in tokens like XRP and Dogecoin would remain under state-level oversight). Those that opt into the federal regime could offer retail customers margin and financing under a single CFTC framework.

That approach is a response to the fragmented system governing much of spot crypto trading today. U.S. exchanges largely operate under state money transmitter and crypto licensing rules built around payments and safeguarding customer funds. The CFTC argues that those rules vary widely and do not uniformly impose the market surveillance, conflict of interest and customer protection standards required of federally regulated trading venues.

Under the agency’s proposal, retail crypto customers using leverage or financing would generally trade through exchanges or brokers that are so called futures commission merchants, or FCMs, bringing those transactions under federal rules for capital, anti money laundering controls and customer asset protection.

This could favor companies that already have much of the regulatory machinery in place. For instance, Coinbase, the largest crypto exchange in the U.S. with $300 billion in assets under custody, operates an FCM and a CFTC-regulated derivatives exchange. Last week it also won CFTC approval for its own clearinghouse, allowing it to clear and settle fully collateralized derivatives in-house.

The agency is now seeking public comment for 60 days before deciding how to proceed with formal rulemaking.

“The proposed rulemaking does as much as it can given the void of Congressional action on granting the CFTC jurisdiction over the spot crypto market,” says Liz Davis, a partner at Davis Wright Tremaine and former CFTC chief trial attorney. Though the agency’s authority would still be limited to leveraged, financed or margined retail transactions, apart from its power to police fraud and manipulation, the proposal is “a stark contrast to the prior administration’s ‘regulation by enforcement’ approach,” she adds.

“Many crypto firms and decentralized finance platforms had wanted to register but didn’t have a way to do so,” Davis says. “This proposed rulemaking now gives them the roadmap.”