Yesterday Dawn Stump, one of the Commissioners at the U.S. Commodity Futures Trading Commission (CFTC) published a paper to clarify the CFTC’s role in regulating digital assets. She noted that these were her views and not necessarily those of other commissioners.
While many might believe that the CFTC regulates commodities, it does not. So while Bitcoin has been considered a commodity, it is not the regulator for the Bitcoin cryptocurrency (although there’s quite a big ‘but’). It is the regulator for derivatives such as futures and options.
And not just derivatives based on commodities. So if a derivative is based on a digital asset that is a security, it could also come under the CFTC’s purview.
Stump was keen to differentiate between CFTC’s regulatory authority, including registration, daily oversight, and regulatory principles, versus its enforcement authority.
This is where the ‘but’ comes in. Because derivatives can be based on commodities, the CFTC can take enforcement action where the cash market shows manipulative or fraudulent behavior. That’s even though it is not the regulator of the cash market. Hence the CFTC has taken action to deter manipulation and fraud in the cash digital assets market.
Stump’s publication comes when there’s much debate about whether there are gaps in current regulations and whether additional regulations are needed, not least by SEC Chair Gary Gensler.
Commissioner Stump’s note clarifies that several cash commodities markets have their own regulators, such as the Federal Energy Regulatory Commission for natural gas. There isn’t currently one for digital assets deemed as commodities.
Last Thursday, in other CFTC news, Commissioner Brian Quintenz announced he would be stepping down at the end of August after his statutory term expired in April 2020. Quintenz was seen as crypto-friendly and it seems likely he will join a cryptocurrency firm. In his departing statement, he said, “I look forward to keeping innovation, particularly related to crypto and DeFi, relevant to my career and will continue advocating for the freedom, innovation, inclusion, and prosperity they offer.”
Shortly before announcing his departure, Quintenz stepped into the debate over Ether, stating he regards it as a commodity not a security.
A futures contract on a security is in both the SEC’s and @CFTC’s jurisdiction. A futures contract on a pure commodity is only in the CFTC’s jurisdiction. There is a currently a futures contract on #ETH. It is only under the CFTC’s purview which makes ETH a non-security commodity— Brian Quintenz (@CFTCquintenz) August 14, 2021
Following his departure, the CFTC will have two out of five Commissioner seats vacant.