CFTC Plan Carves Out Self-Custody and On-Chain Trading

The CFTC’s plan for crypto exchange rules would tighten oversight of custodial trading platforms while leaving self-custody and on-chain trading outside the federal net, the agency said Monday.

The Commodity Futures Trading Commission outlined two linked frameworks, Regulation CTX and Regulation CAM, in an advance notice of proposed rulemaking published Monday. The step seeks public comment before formal rules are drafted, and the public would have 60 days to comment once the notice appears in the Federal Register.

Under Regulation CTX, simply offering leverage, even through terms of service, could bring fully paid trades under CFTC watch as long as the purchased crypto sits on the exchange’s internal books rather than in the customer’s own wallet. Trades escape that oversight only through “actual delivery,” which the agency suggests could require customers to hold their private keys. The CFTC also said on-chain trading protocols would usually clear that bar.

The private-key standard is a preliminary suggestion, not settled policy. The agency is also weighing proof-of-reserves requirements and standards against listing tokens prone to manipulation, but neither is decided.

The carve-out cuts a clear line through the US market. Exchanges that keep customer assets on their books and offer leverage would face a federal regime, with Regulation CAM creating a “crypto asset market” license modeled on the status held by futures exchanges. Trades under that license would run through futures commission merchants, brokers subject to anti-money laundering rules, and leverage could come only from those brokers or banks they sponsor. Exchanges that offer no leverage could keep operating under state money transmitter licenses.

The approach also marks a turn for the agency itself. The notice describes its past cases against Kraken, Ooki DAO and Uniswap, brought during the Biden administration, as “regulation by enforcement.”

The plan arrived after Congress came up short. The Clarity Act, legislation that would have set ground rules for most US crypto activity, failed in the Senate in September, and the CFTC sent its framework to the White House for review days later. Chairman Michael Selig had said in August the agency would write its own rules if Congress did not act.

Selig said the rules are “designed to prevent, rather than only prosecute after the fact, fraudulent schemes such as FTX.”

The SEC is moving on a parallel track, having proposed its own Regulation Crypto Assets in August and unveiled an innovation exemption for tokenized stocks last month. How the two agencies’ frameworks fit together is not yet known.