CFTC Eases Broker Rules for Non-Custodial Crypto Software Providers

The U.S. Commodity Futures Trading Commission (CFTC) on Thursday issued new guidance that exempts certain software providers from registration requirements, a move that could significantly expand trading in cryptocurrency and prediction markets. The regulator clarified that it will not pursue enforcement actions against passive software providers who partner with regulated entities, provided they never take custody of user assets.

Details of the New Guidance

Under previous rules, any company that solicited or accepted trade orders and received compensation was typically required to register as a broker. The new guidance carves out an exemption for firms that provide software or technology for trading but do not handle customer funds.

This follows a no-action letter the CFTC granted in March to Phantom Technologies Inc., which waived the registration requirement. Phantom has since partnered with the regulated platform Kalshi to offer predictions trading to its more than 20 million crypto wallet holders.

Market Implications

The guidance formalizes a business model already being adopted by several firms in the digital asset space. Brandon Millman, CEO of Phantom, stated that this approach sets a new standard. "This is how it should work: software built to protect consumers, paired with regulated partners, giving more people safe access to the financial services they want," Millman said.

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Legal experts suggest the implications could be broad. Aaron Brogan, founder of Brogan Law, noted the guidance could allow prediction markets to be integrated into a wide range of platforms. He added that any product tradable on a designated contract market could potentially be covered by this exemption. Other industry players, including Crypto.com and ProphetX, already operate under a similar model with CFTC-registered platforms.

Regulatory Context

The CFTC stated the guidance will remain in effect until the agency undertakes a formal rulemaking process or issues superseding guidance. This regulatory development comes shortly after a bipartisan group of senators blocked broader crypto market legislation sought by the industry.

According to the report, CFTC Chairman Michael Selig and Securities and Exchange Commission Chairman Paul Atkins have committed to implementing rules for the digital asset industry without new legislation, signaling a continued focus on using existing regulatory authority.