Hare raising? CFTC proposes federal rules for leveraged retail crypto trading
The Commodity Futures Trading Commission (CFTC) has released an advance notice of proposed rulemaking (Rule Making) on two new regimes: Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM). Chairman Michael Selig unveiled the proposals in remarks at the Fordham Law Blockchain Regulatory Symposium in New York on 5 October 2026 (the writer was in attendance). The proposals would give crypto exchanges that offer margined, leveraged or financed trading to retail customers a US federal registration option, as an alternative to state-by-state licensing.
The CFTC is relying on its existing authority over leveraged retail commodity transactions under section 2(c)(2)(D) of the Commodity Exchange Act (CEA). Selig tied the move to Congress's failure to pass the CLARITY Act, which stalled in the Senate in September. The Rule Making follows the SEC's crypto custody proposal for advisers and funds, as both agencies build rules under existing statutes while the bill waits.
Under the prior administration, the CFTC and SEC targeted crypto exchanges, custodians and software developers for alleged failures to comply with laws and regulations. Rather than use their authority to issue new rules to account for the innovation occurring in our markets, the two agencies chose to regulate through enforcement.
said Michael Selig, Chairman of the CFTC.
Three rungs on the ladder
Selig described the framework as a three-rung ladder:
Rung 1: ordinary spot exchanges, subject to the CFTC's anti-fraud and anti-manipulation authority and regulated under state money transmission laws;
Rung 2: exchanges that also offer retail customers margined, leveraged or financed crypto trading, which would register with the CFTC. This is the tier the Rule Making targets; and
Rung 3: exchanges that also offer perpetuals and other derivatives, which are registered designated contract markets (DCMs) and could begin offering CTXs under tailored rules.
Spot exchanges on Rung 1 stay outside federal registration, which leaves the spot market gap that the CLARITY Act was meant to close.
Regulation CTX
Regulation CTX deals with the transactions themselves. As outlined in the Rule Making and Selig's remarks, it would:
identify the crypto asset transactions offered to retail customers on a margined, leveraged or financed basis that the CFTC considers fall within section 2(c)(2)(D) of the CEA;
require those transactions to be intermediated by a futures commission merchant (FCM), which would hold customer accounts and funds under the CEA's customer protection rules;
bring that activity within Bank Secrecy Act obligations through the FCM requirement; and
codify that delivery of a crypto asset to a user's external, non-custodial wallet within 28 days generally satisfies the statutory "actual delivery" exception.
Payment stablecoins issued by a permitted issuer under the GENIUS Act are carved out of the proposed definition of "crypto asset".
Regulation CAM
Regulation CAM deals with the venues. It would:
create a new subcategory of DCM, a "crypto asset market", for exchanges that offer only CTXs;
apply the statutory DCM core principles to those exchanges, supplemented by tailored rules;
address listing and manipulation risks specific to crypto, such as token distribution, lock-up periods and buybacks;
impose a proof-of-reserves obligation on exchanges holding customer property in omnibus accounts, which Selig called "a safeguard that I am sure would have benefitted FTX's retail customers"; and
leave exchanges that offer futures, options or swaps under the existing DCM framework.
Selig also said the CFTC would explore a policy for developers who publish software but do not solicit or take orders, control execution or hold customer assets. Comments on the proposed Rule Making are due 60 days after its publication in the Federal Register.
Slow and steady
Congress has signaled that agency rules will not settle the matter. House Financial Services Committee Chair French Hill told Fox Business on 7 October that the SEC and CFTC had made progress, but that their efforts "fell short" of what legislation would provide. Hill wants the CLARITY Act passed in the lame-duck session, with 22 scheduled Senate session days between the November midterms and the start of the new Congress in January.
We need that permanent law change to make sure America is number one in digital assets and blockchain technology.
said Rep Hill. Hill's concern is durability. Advanced notice of rule making is the first step, not the final rule itself. A proposed rule, a further comment period and a final rule must follow, and Selig is presently the CFTC's sole sitting commissioner. A future Commission could revise or withdraw this rule at any time, legislation would make the changes much more permanent.
What NXT?
Exchanges, brokers and those operating in the US, or offering services to US retail customers, should:
map current and planned US products against the three rungs, with attention to any margin, leverage or financing features offered to retail customers;
review omnibus custody arrangements against the proposed proof-of-reserves obligation;
test token listing policies against the CAM focus on token distribution, lock-ups and buybacks;
check whether withdrawal and settlement mechanics would meet the proposed 28-day actual delivery standard;
for offshore platforms, including Cayman Islands and BVI VASPs, consider whether a relationship with a US platform or CAM registration offers a route to US retail customers that does not exist today; and
prepare comments for the 60-day window that opens on Federal Register publication.
The EU and UK license crypto exchanges, spot trading included, through a single statutory regime, and the Cayman Islands does the same under the Virtual Asset (Service Providers) Act. The US approach differs: the CFTC is extending derivatives law to leveraged retail trading, while spot venues remain with state money transmission regulators. That gives exchanges a federal path for one product line and leaves the rest to further rule-making which can be undone by a future administration. Congress still has an unlikely, but narrow, opportunity to get moving and finish the race. Until then, projects would be wise to plan for a future where these rules could be undone, and structuring their businesses sensibly with suitable financial centers like Cayman playing a key role, will help that happen.
