CFTC gives non-custodial wallets a path into regulated crypto derivatives markets

The Commodity Futures Trading Commission has broadened no action relief for providers of passive trading software, allowing qualifying firms to facilitate access to regulated derivatives markets without registering as introducing brokers.

The CFTC’s Market Participants Division said Thursday that it will not recommend enforcement against eligible software providers or their relevant personnel for failing to register as an introducing broker or associated person. The relief applies when the software facilitates trading between users and registered futures commission merchants, introducing brokers, and designated contract markets, subject to specified conditions.

The move expands a framework first granted specifically to Phantom Technologies in March under Staff Letter 26 09. Phantom had sought relief as it prepared to allow users of its self custodial crypto wallet software to access CFTC regulated derivatives through registered firms and exchanges. The CFTC granted the request on March 17.

Under the Phantom framework, the software was required to remain passive in the trading process. Phantom would not hold or control users’ assets, generate express buy or sell signals, or exercise discretion over the routing or execution of orders. Users would transmit orders directly to registered counterparties through Phantom’s interface.

The relief also came with several compliance conditions. Phantom was required to disclose potential conflicts of interest and fees, provide relevant risk disclosures, maintain records, and follow CFTC and National Futures Association rules governing marketing and communications as though it were registered as an introducing broker. Users also had to remain able to access the registered trading provider independently of Phantom.

Thursday’s announcement takes a similar approach but makes the position broadly available to providers that satisfy the applicable requirements. While the original relief involved a crypto wallet, the CFTC’s latest announcement refers generally to passive software providers and does not limit the position to crypto applications.

The distinction could be relevant for crypto wallets and other trading interfaces looking to integrate access to regulated derivatives such as perpetual contracts or event contracts. Phantom’s original proposal specifically contemplated an interface through which users could view market information and submit orders for event contracts, perpetual contracts, and other CFTC regulated derivatives.

The relief remains a staff no action position rather than a change to the CFTC’s registration rules. Staff Letter 26 09 stated that its position represented the view of the Market Participants Division and was not binding on the Commission. The letter also said the Phantom relief would apply until Commission rulemaking or guidance addressed how introducing broker registration requirements apply to software providers.

The broader relief also follows a June CFTC request for information seeking public input on regulations, guidance, orders, and no action letters that may impede fintech firms from working with federally regulated institutions or entering the market.

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