CFTC advances crypto rulemaking proposal for Trump White House review

The Commodity Futures Trading Commission (CFTC) has sent a proposal on crypto market rules to the White House budget office for review on Thursday, September 17.

A day before the commission filed this proposed rule, its chairman, Michael Selig, said that they would use their existing statutory authorities to help the president deliver a future-proof crypto asset regulatory market structure. 

This was in the aftermath of a Senate vote that dashed the hopes of progressing the CLARITY Act. 

The latest proposal shows that the commission is making good on what its chairman has said.

A rulemaking parked at OIRA

The filing, titled “Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets,” went to the Office of Information and Regulatory Affairs (OIRA). 

The OIRA sits inside the Office of Management and Budget and vets federal regulations before they can be published.

A sign-off from the OIRA does not make what the CFTC submitted a final rule, as it is just a major step that is required. 

In an August speech, Selig said that he had informed the commission’s staff to examine how developers could offer protocols and to draft a framework built on powers the agency already holds. 

In his words, that work would “codify a CFTC market structure for crypto assets using the agency’s existing authorities.”

He also spoke about a new type of designated contract market that will see registered firms as well as non-registered crypto exchanges offer leveraged or margined crypto trading under CFTC oversight.

Why is the CFTC moving now?

The Senate had a cloture vote on the CLARITY Act on Tuesday, September 15. They voted 49 to 50, which was eleven votes short of the 60 needed to advance the bill.

The bill would have built the first comprehensive federal framework for digital assets and divided oversight between the CFTC and the Securities and Exchange Commission (SEC). 

The vote does not mean the end of the act, as Senate leaders can still revive it. The only challenge is that those who were hoping that it would advance this year may have to wait till next year, as the odds of another vote happening this year are slim.

Democratic negotiators pointed to ethics as their reason for opposing the measure. President Donald Trump’s crypto holdings are now estimated to be in the hundreds of millions of dollars. It also has ties to the World Liberty Financial venture, which is run by his sons. 

These investments and family ties have raised questions about conflicts of interest, especially as the rule-making process continues to drag on. 

Three actions in three days

Since the CLARITY Act failed to advance, the CFTC and SEC have gone to work, releasing a series of rules and changes. 

On the same day the CFTC made its OIRA filing, the SEC released its long-awaited “innovation exemption,” a five-year conditional order that allows blockchain venues to trade tokenized US stocks without registering as exchanges. 

In a staff letter published the same day, the CFTC issued a no-action cover for software developers, telling them that it would not recommend enforcement against them for failing to register as introducing brokers. However, the developers have to meet ten conditions covering custody, order routing and trading signals.

Selig said his commission was “locked in and ready to ship its rules,” while SEC Chair Paul Atkins pledged to act “with or without legislation.” 

A head start, not a statute

All the actions that the CFTC and SEC have carried out in the past few days, while they set the direction for the market, are not set in stone. They come with expirations that may end before their set dates. The SEC’s innovation exemption is expected to run for five years; however, a future chair can decline to renew it. 

The CFTC’s no-action letter is in place till a formal rule is adopted by the commission. However, the Commission also says that it is not binding, and it can be modified, suspended, or terminated at its own discretion.

The SEC’s Regulation Crypto Assets, the related offering framework, remains a proposal with comments open until October 20.

The SEC sent a proposal to OIRA in a bid to rewrite the rules on crypto custody in late August.

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