CFTC Proposes Federal Regulatory Framework for Crypto Leveraged Trading

The US Commodity Futures Trading Commission (CFTC) has unveiled a federal regulatory framework for crypto leveraged trading, aiming to address the sector's long-standing regulatory uncertainty. On October 5, the CFTC published an Advance Notice of Proposed Rulemaking (ANPRM) outlining two key pillars: Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM). These aim to establish rules for retail crypto transactions and create a new category of CFTC-registered markets tailored to crypto trading. The public comment period is open for 60 days.

CFTC Chairman Michael Selig emphasized that this framework offers a federal alternative to state licensing, without requiring all crypto spot exchanges to register with the CFTC. The agency highlighted the need for a regulatory shift, citing the 2022 collapse of FTX as a catalyst. The CFTC argued that state-level money transmitter licenses are inadequate for financial markets, as they lack protections like preventing market manipulation and safeguarding customer assets.

The new framework differs from the failed CLARITY Act, as it does not mandate that crypto trading be confined to CFTC-registered platforms. Instead, it provides crypto exchanges with the option to operate under a single federal regulatory regime, allowing them to offer margin, leverage, and lending services to retail investors. The CFTC also criticized the SEC's approach under former Chairman Gary Gensler, which required companies to treat crypto assets as securities, forcing compliance with outdated regulations.

The CFTC seeks input on preventing misconduct in crypto markets and establishing industry best practices. While the agency acknowledges that its unilateral regulations cannot permanently replace congressional legislation, it aims to create a bespoke regulatory system that accounts for the unique characteristics of crypto assets.