This year, the Commodity Futures Trading Commission will remain busy with ongoing regulatory matters while pivoting toward a consumer protection agency that can accommodate retail-driven digital assets markets.
Enforcement will still be its top priority, but there will be less regulation by enforcement and greater focus on fraud and manipulation. Expect the following changes at the CFTC after President-elect Donald Trump takes office this month.
After CFTC Chairman Rostin Behnam resigns on Jan. 20, one of the Republican commissioners, Summer Mersinger or Caroline Pham, will become acting chair until she is confirmed or a new commissioner and a permanent chair are nominated and confirmed in the Senate.
New leadership will focus on several areas. One is to assess the efficiency of the CFTC's processes and implement measures to streamline operations and reduce redundancies, consistent with proposals from the Department of Government Efficiency initiative.
Such measures could include requiring all CFTC staff to work in the office, reducing non-essential travel, reclassifying employee roles, and reviewing the agency to ensure consistency and alignment with the new administration's policy objectives. The CFTC headquarters also will be relocated to a new Washington, D.C., site to accommodate modern operational needs.
A potential merger between the CFTC and Securities and Exchange Commission will be considered but likely not happen. There is too much value in market participants' ability to choose between two regulatory frameworks for novel products that best meet their needs.
A merger would require congressional approval and compromise among supervisory committees, making the process highly contentious. But any merger discussions would emphasize preserving the independence of commodities and securities regulatory systems, while fostering better coordination between the agencies.
Finally, the CFTC will re-establish a cooperative relationship with the SEC and participate in joint working groups with fellow regulators toward goals that are consistent with the public interest and promoting US businesses' global competitiveness.
The new CFTC chair will articulate the agency's short- and long-term priorities, providing a comprehensive roadmap for market participants and stakeholders.
If new digital assets legislation is enacted soon, the CFTC will implement its provisions and amend its existing rules or promulgate new ones.
No new legislation will cause the CFTC to implement exemptions for new digital products and new forms of business because greater regulatory certainty will foster innovation while ensuring compliance and market stability. Exemptive authority under the Commodity Exchange Act has allowed the CFTC to address emerging regulatory issues. This mechanism may be leveraged again to enable new models while rulemaking is underway.
Given that crypto markets are driven largely by retail participants, the CFTC will need to implement rules that improve the customer and retail participant protection framework for digital assets to remain on par with the SEC. These rules will include enhanced reporting, investor education initiatives, direct clearing, and stricter oversight measures to strengthen consumer confidence in the digital asset markets.
Additionally, the CFTC will assess whether "commodity" can be further defined or whether to implement a formal process for designating certain goods and articles as commodities that would minimize uncertainty and create a more predictable regulatory environment.
This will be critical to address jurisdictional disputes, as exemplified by past conflicts over Bitcoin and Ether. The CFTC likely will further clarify emerging regulatory issues related to tokenization and fractionalization of assets, especially in the 24/7 derivatives trading, collateral management, and clearing environment.
The CFTC will focus more on enforcing existing laws, not making new ones. For example, its enforcement division has created new, expansive disclosure requirements for swap dealers relating to pre-trade market marks and other pre-trade disclosures, such as hedging.
Instead of regulation by enforcement, the CFTC should amend its rules or provide clear guidance on what would constitute an acceptable market practice for disclosures. The agency has charged dealers billions in sanctions for reporting and record-keeping violations indicating that these rules lack clarity.
The CFTC will try to finalize existing regulations, including those relating to cross-border rules, position limits (economically equivalent swaps), futures commission merchants' accounts and investment of customer assets, collateral management, and the use of US Treasuries, conflicts of interest and vertical integration, swap execution facilities, reporting and record-keeping, and other regulatory priorities. This will involve revisiting key unfinished business from the Dodd-Frank Act implementation and addressing other areas where overlapping rules remain unresolved.
The National Futures Association will be encouraged to revise its enforcement program to make it more independent of its regulatory and supervisory function. For instance, regulatory filings shouldn't be used as a tool for discovery for an enforcement action.
Market participants will be provided with mechanisms to challenge the NFA's rulemaking process to ensure that such rulemaking stays within the boundaries of the NFA's jurisdictional grant. This independence will foster a regulatory environment that promotes fairness and consistency.
Several previously enacted regulatory actions, such as the proposed event contacts rule and the voluntary carbon credit guidance, likely will be overhauled or even rescinded.
The CFTC will encourage the industry to design global or industry codes -- similar to the global foreign exchange code -- in areas where it may not have regulatory jurisdiction, such as spot or cash markets. This initiative will support self-regulation while allowing the industry to develop flexible, market-driven standards.
The agency also will likely update its 2012 products and entities definitions and guidance to align with existing market practices, provide clear guidance on regulated activities and participant categories, and maintain respect for registered entities. For example, updated definitions would address areas such as voluntary carbon credits, clarifying their status as commodities or property and providing detailed guidance for energy and environmental markets.