CFTC Expands Regulatory Relief for Passive Trading Software Providers
The US Commodity Futures Trading Commission (CFTC) has expanded regulatory relief for providers of passive software that link users to regulated derivatives firms and exchanges. This move facilitates crypto wallets and other applications in offering access to regulated derivatives without the need to register as introducing brokers themselves, provided they adhere to specific conditions limiting their transactional role.
CFTC Expands No-Action Position for Passive Software Providers
On Thursday, the CFTC’s Market Participants Division issued a no-action position stating it would not recommend enforcement against qualifying providers or their personnel who fail to register as introducing brokers or associated persons while facilitating trades with CFTC-registered derivatives firms and exchanges.
Qualifying Conditions and Impact on Crypto Wallets
To benefit from this relief, providers must adhere to conditions that limit their role in transactions, including prohibitions on exercising discretion over users’ orders. This enables crypto wallets and other applications to offer access to regulated derivatives such as perpetual contracts and prediction markets without themselves needing to register as introducing brokers.
Extension of Relief Established for Phantom Technologies
This action builds on a similar position granted in March to Phantom Technologies for its self-custodial crypto wallet software. That earlier letter allowed Phantom, subject to conditions, to provide and promote software connecting users with registered futures brokers and exchanges without requiring Phantom to register as an introducing broker.
Context of Legislative Setback and Regulatory Response
The CFTC’s announcement followed just two days after the CLARITY Act failed to advance in the Senate, missing the 60 votes needed to proceed. Subsequently, CFTC Chair Michael Selig and SEC Chair Paul Atkins affirmed their intentions to continue crypto regulation under existing authority, with Selig announcing readiness to implement new rules and Atkins signaling the SEC’s determination to act with or without legislation to bring regulatory certainty to digital assets.
SEC's Parallel Authorization for Onchain Tokenized Stock Trading
On the same day as the CFTC’s no-action position, the SEC approved a temporary exemption allowing qualifying platforms to facilitate limited onchain trading of tokenized U.S. stocks via permissioned automated market makers and liquidity pools. This complements the regulatory developments around digital and tokenized asset trading.
Why it matters
The CFTC’s expanded relief for passive trading software providers represents a significant step toward fostering integration between crypto infrastructure and traditional regulated derivatives markets. By lowering regulatory hurdles for crypto wallets and similar applications to connect users with regulated exchanges, it simplifies user access to derivative products and promotes lawful and transparent market participation. This development supports growth and maturation of blockchain-based derivative markets within the existing regulatory framework, especially pertinent following the recent legislative setback and ongoing regulatory initiatives.
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