On October 5, the CFTC announced an advance notice of proposed rulemaking previewing “Regulation Crypto Asset Transactions” and “Regulation Crypto Asset Markets.” The rules would apply section 2(c)(2)(D) of the Commodity Exchange Act (CEA), which covers retail commodity transactions offered on a leveraged, margined or financed basis, to crypto assets. Such transactions must be conducted on or subject to the rules of a designated contract market (DCM). The CFTC said, however, that uncertainty over how to comply has frustrated efforts to bring them onto DCMs, leaving retail customers to rely mainly on state money transmission regimes that address payment rather than financial-market risks. The notice follows the CFTC chairman’s August direction to staff to explore crypto market structure rules under existing authority (previously covered by InfoBytes here). Comments are due December 14.

Regulation Crypto Asset Transactions would set out the CFTC’s preliminary interpretations of what counts as a covered “offer” of leverage and what qualifies as “actual delivery.” A covered offer would attach to every transaction in which a retail customer could accept leverage, even if the customer pays in full, and could arise from routine customer paperwork, such as account-opening or margin agreements. Actual delivery, in turn, may require that the buyer hold the private keys to the associated wallet. A fully paid transaction recorded only on an exchange’s internal ledger would remain subject to the CEA until actual delivery occurs, though the CFTC preliminarily understands that transactions executed through onchain protocols typically meet the standard.

Further, Regulation Crypto Asset Markets would create a “crypto asset market,” a new subcategory of DCMs, subject to core principles adapted for crypto, for exchanges that list only such transactions. Existing DCMs could also offer them. The transactions would be intermediated by a futures commission merchant and cleared by a derivatives clearing organization, and a crypto asset market could register as, or affiliate with, either or both. Leverage could be extended only through arrangements administered by a futures commission merchant or a bank it sponsors. The CFTC also asked whether exchanges that make no covered offer would retain a viable path to keep operating under state regimes.