The offer of leverage is the switch

On Monday the Commodity Futures Trading Commission published what its chairman, Michael Selig, called its "first round of regulations for crypto markets". It is not yet a rule. The release describes an advance notice of proposed rulemaking, and says the comments it draws will inform "potential future agency action, such as a rulemaking". The notice sketches two pieces: Regulation Crypto Asset Transactions, or CTX, and Regulation Crypto Asset Markets, or CAM. Comments are due 60 days after it appears in the Federal Register.

"Unlike the Clarity Act, these regulations wouldn't require crypto assets to trade on CFTC-registered platforms," he wrote in a Wall Street Journal op-ed the agency posted on Monday. "We don't have the authority to impose such a requirement without congressional action." The plan instead offers what he calls a purpose-fit option for exchanges that want one federal regulator. Its selling point is leverage: "Unlike state-licensed exchanges, these exchanges would be permitted to allow retail customers to trade on a margined, leveraged or financed basis."

The authority rests on a provision added by the Dodd-Frank Act in 2010, section 2(c)(2)(D) of the Commodity Exchange Act. It says a retail commodity transaction that is entered into, or "offered (even if not entered into)", on a leveraged, margined or financed basis must be traded on a regulated exchange as if it were a futures contract. The main way out is "actual delivery" of the commodity within 28 days. Section III of the 107-page notice sets out how the Commission would read those words for crypto, and the reading is wide.

Start with the offer. The Commission says it preliminarily believes an offer of leverage "attaches to all agreements, contracts, or transactions to which it is applicable", whether or not any one trade uses borrowed money. Such an offer can be made in "standard customer documentation such as customer onboarding documents", exchange terms and conditions, or credit and margin documents. It can cover "all transactions available on an exchange" or "all transactions available through a customer account". Financing also counts when it comes from someone "acting in concert" with the exchange. That can include a lender the exchange advertises, shares revenue with, or offers through its own financing platform.

Then delivery. A customer who turns leverage down and pays in full still holds what the notice calls a "fully paid, open CTX". It stays under the Commission's futures-style rules for as long as it is "only recorded on an internal book-entry of the exchange, prior to actual delivery". Delivery, in the Commission's preliminary view, may require possession of the private keys to the wallet that holds the asset. For governance tokens, it may also mean voting directly; for staking, staking "without being subject to fees charged by an intermediary". On this reading, a coin left in an account at an exchange that offers margin would be a regulated position. Once it moves to a wallet the customer controls, the Commission keeps only its anti-fraud and anti-manipulation powers.

That makes the offer a switch the exchange controls. The notice asks commenters directly whether its reading would leave "a commercially viable avenue for an exchange to elect to not offer CTXs and thereby continue to operate under the state-level regulatory framework". An exchange that wants to offer retail customers leverage takes the whole package. One that does not can stay with state money-transmitter licences, which the notice spends several pages arguing protect retail customers poorly.

A CAM would be a new kind of designated contract market that lists only crypto transactions. Every trade would have to go through a futures commission merchant and be cleared by a derivatives clearing organisation. Leverage could come only from a futures commission merchant or from a bank that one sponsors. The notice would also let a single firm hold all three registrations, exchange, broker and clearing house, which it calls a "Fully Integrated CAM". The notice says crypto firms typically run integrated businesses of this kind. Better Markets says affiliations like these contributed to FTX's collapse.

For decentralised venues, the Commission says it preliminarily understands that trades on on-chain protocols "typically result in a purchaser obtaining possession and control" of the asset, which would satisfy actual delivery. In one passage it adds that case law treats a lien and control as separate questions, "such that actual delivery may occur where a lien or security interest remains outstanding". A footnote gives the example of a protocol that liquidates a margined position when its collateral falls too far. Near the end of the document, the same point appears with the opposite wording: actual delivery "may not occur where a lien or security interest remains outstanding". The text is marked as subject to pre-publication technical corrections. Which wording the Commission means matters for whether margined on-chain trades could count as delivered.

The groundwork is thin. When the Commission asked last year how exchanges could list these transactions, it received 11 comments, the notice says. The first such trades on a US regulated exchange were announced on 4 December 2025, with no rulebook written for them. Better Markets, which argues retail investors would be safer under the Securities and Exchange Commission, has already objected. "Unlike the SEC, the CFTC lacks an investor protection mandate," Benjamin Schiffrin, its director of securities policy, said, as quoted by Cointelegraph. "Because the CFTC's rules lack the protections that apply when investors trade securities regulated by the SEC, the CFTC is the wrong agency to regulate transactions involving crypto assets by retail customers."

Selig has his own caveat. "We haven't solved every problem, nor can agency action substitute indefinitely for a statutory framework passed by Congress, but we must do what we can," he wrote. Industry insiders say, according to American Banker, that rules adopted by the SEC and CFTC may not have the permanence of legislation and could be more easily changed by future administrations. Even the reach of these rules depends on a choice exchanges make for themselves: whether to offer customers leverage.