US Regulators Advance Federal Crypto Rules to Protect Retail Traders

The U.S. Commodity Futures Trading Commission (CFTC) launched a federal initiative on October 5 to establish a national framework for retail crypto commodity transactions. This effort aims to provide tailored protections for retail crypto traders and runs alongside measures by the U.S. Securities and Exchange Commission (SEC) addressing asset safekeeping and blockchain-based stock trading. CFTC Chairman Michael S. Selig emphasized that this framework offers a federal option for crypto asset exchanges, though requiring all exchanges to register federally would need congressional action.

SEC Chairman Paul S. Atkins signaled more regulatory proposals are coming, arguing that outdated requirements should not push onchain markets offshore. The SEC's proposed changes include a tailored custody framework that permits self-custody in certain circumstances and allows state trust companies as custodians. Additionally, the Innovation Exemption, introduced on September 17, provides temporary relief for qualifying trading venues handling tokenized stocks, with conditions such as restricted access to approved participants and equivalent shareholder rights.

Customer protections under the Commodity Exchange Act would include proof of reserves and registered intermediaries handling accounts under disclosure, capital, and segregation requirements. Selig also proposed clarifying that transfer to an external noncustodial wallet within 28 days generally satisfies an exception to registered-exchange trading requirements. Written comments on these proposals are due within 60 days of publication in the Federal Register.