CFTC Moves to Regulate Leveraged Crypto Trading for Retail Investors
The U.S. Commodity Futures Trading Commission (CFTC) has initiated work on a federal rule proposal aimed at regulating retail crypto trading involving leverage, margin, and lending. This move comes after Congress failed to advance the CLARITY Act, a bill intended to establish a federal regulatory framework for the crypto market. The CFTC is now leveraging its existing legal authority under the Commodity Exchange Act to develop these rules.
On October 5, the CFTC released an advance notice of proposed rulemaking (ANPRM) to gather public input on crypto transactions involving retail investors' margin, leverage, and lending. The comment period will last 60 days after the proposal's publication in the Federal Register. The ANPRM outlines two regulatory frameworks: the Crypto Transaction Regulation (CTX) and the Crypto Asset Market Regulation (CAM). CTX focuses on overseeing trading that uses margin, leverage, or lending under a single nationwide system, while CAM is a new sub-category tailored for exchanges that provide only CTX.
CFTC Commissioner Michael S. Selig emphasized that this initiative is part of efforts to maintain the U.S. as a crypto hub. Selig noted that President Donald Trump has committed to establishing a crypto market structure regardless of congressional action. The proposal also includes measures to prevent fraud, such as those seen in the FTX collapse, by setting rules to protect customer assets and prevent market manipulation.
The CFTC's proposal differentiates between exchanges offering typical spot trading and those providing leveraged trading. Exchanges that offer margin, leverage, or lending transactions would be subject to CFTC registration and federal regulation, while those offering only spot trading can remain under state money transmitter regulation. The CFTC also proposed that crypto could qualify for a physical delivery exception if transferred to a customer's external non-custodial wallet within 28 days.
CAM-registered exchanges would face requirements to prevent market manipulation and protect customer assets, including proof-of-reserves requirements and anti-money laundering obligations. The CFTC's independent move follows the failure of the CLARITY Act in Congress, highlighting the agency's intent to proceed with rulemaking using its existing authority. The U.S. Securities and Exchange Commission is also working on a separate regulatory framework for crypto.