CFTC expands crypto trading with new software provider rules

Investing.com -- The Commodity Futures Trading Commission issued new guidance Thursday to expand cryptocurrency and prediction market trading through online platforms by exempting certain software providers from registration requirements.

The CFTC said that passive software providers partnering with regulated entities will not face enforcement penalties for failing to register as brokers, provided they never take custody of user assets.

Under previous rules, companies that solicited or accepted trade orders, sent them to futures commission merchants and received compensation through fees or commissions were required to register as brokers. In March, the CFTC granted a no-action letter to Phantom Technologies Inc. waiving that requirement. Phantom has partnered with Kalshi to offer predictions trading to its more than 20 million crypto wallet holders.

Brandon Millman, chief executive officer of Phantom, said the company established the foundation for platforms that do not take custody of user assets or make trading decisions.

"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.

Other companies in the prediction markets industry have adopted this business model, including Crypto.com and ProphetX, both of which operate CFTC-registered platforms.

Aaron Brogan, founder of Brogan Law, which specializes in emerging companies and regulated businesses, said the guidance could allow prediction markets to be placed nearly anywhere. Any product that can trade on a designated contract market could potentially be covered by this guidance, he said.

The CFTC stated the new guidance will remain in effect until an agency rulemaking or other guidance becomes effective.

The announcement follows Tuesday's decision by a bipartisan group of senators to block crypto market legislation sought by the industry. CFTC Chairman Michael Selig and Securities and Exchange Commission Chairman Paul Atkins have committed to implementing rules for the digital asset industry without legislation.

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