CFTC Clears Way for Crypto Developers to Build Trading Tools Without Broker Registration

The Commodity Futures Trading Commission (CFTC) has issued a no-action position regarding Passive Software Providers (PSPs) that build trading tools for derivative products. The regulator confirmed it won’t pursue enforcement actions against such crypto developers under certain conditions, even if they don’t register as brokers.

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CFTC Issues No-Action Position To Crypto Developers

In a press release, the Commission’s Market Participants Division today announced it has issued a no-action position benefiting providers of passive software. The Division notably issued the letter in response to a PSP that enables trading in Commission-regulated derivative products.

The CFTC Division confirmed that it will recommend an enforcement action against such developers for their failure to register with the Commission as an introducing broker, subject to certain conditions and until the effective date of a Commission rulemaking or guidance addressing the application of the introducing broker. This relates to their engagement in covered activities.

The release of the no-action position comes just hours after the SEC released the innovation exemption order for tokenized stocks. The order grants a five-year exemptive relief to venues that offer these tokenized products subject to certain conditions.

SEC and CFTC Chairs Paul Atkins and Mike Selig have signaled they will continue to provide clarity for the crypto industry despite the setback with the CLARITY Act. The Senate failed to invoke cloture on the crypto bill earlier this week, and it remains unclear whether the crypto industry will have a comprehensive market framework.

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Conditions For These Crypto Developers

The CFTC outlined ten conditions under which these crypto developers may not need to register as introducing brokers. First, these developers, which are engaged in covered activities, are not subject to statutory disqualification.

Another notable condition is that users of the PSP’s trading tools are direct members or customers of the Commission-regulated derivative exchange and can continue to access the respective Registrant independently of the PSP. The PSP must also not engage in advertising or promotions that, if the PSP were registered as an introducing broker, would require pre-approval by NFA.

The PSP would also have to file a notice with the CFTC Division agreeing to satisfy these conditions and consenting to the Commission’s jurisdiction to investigate and take enforcement action against the PSP for any violation in connection with the covered activities that the PSP engages in.

For more on trading, check out Best Regulated Crypto Exchanges in the USA