1/ The CFTC just published guidance on crypto derivatives. I'll provide some brief commentary here. First, it's a delight to see a regulator taking a careful approach to this industry. No new laws - just thoughtful interpretation of existing ones.
2/ CFTC may be more of a niche regulator than the SEC (which has been the focus of much interest of the last year!) but they are no less powerful and no less important. This new piece of guidance focuses on market manipulation, AML and reporting.
3/ Because derivatives get their value from underlying assets, CFTC wants surveillance for the underlying spot markets. In that regard, DCMs and SEFs must have data sharing and surveillance arrangements with the trading venues from which their prices are derived.
4/ As a result, real-time monitoring is required. Significant burden for derivatives trading venues but, realistically, how else could you get reliable info in a 24/7 market?
5/ Speaking of real-time, CFTC wants close and constant commnication directly with the listing exchange so the CFTC staff can conduct its own surveillance.
6/ BTW, speaking of surveillance, If you haven't seen @giancarloCFTC 's market surveillance center you haven't truly lived. It's like NASA mission control in there.
7/ Reporting firms must also file information on so-called Large Traders, but CFTC keeps discretion as to what threshold constitutes a Large Trader in the crypto context. Interesting to see where that leads.
8/ Large Trader rules control for a number of risks, but the most salient among them is, you guessed it: market manipulation. Would you believe this could ever happen in the crypto markets?
9/ Here's an interesting one: Prior to listing a new contract, CFTC expects the exchange to elicit comments and views from stakeholders. Query whether this will create a legendary trollbox...
10/ So, CFTC has thought through the issues and provided some meaty guidance. This is going to leave practitioners asking the obvious question...
11/ Where's the guidance from SEC? To be sure, SEC recently published a clever ICO parody you can find here: howeycoins.com/index.html, but it hasn't published comprehensive guidance on securities laws and crypto.
12/ Why not? Well, for one thing, the questions before SEC are just harder. CFTC didn't have to struggle against decades of precedent to answer the question "What is a commodity derivative?" That question has a relatively swift and obvious answer.
13/ The question of "What tokens are securities," though, is one that still entrances practitioners and regulators alike, even after years of controversy. Believe me it's a hard question to answer...
14/ Not only is it harder from a practitioner's standpoint, but it's also far, far more political. It could move a lot of cheese, so to speak. So, while the issues before the CFTC aren't simple, the consequences for getting it wrong are much, much worse on the securities front.
15/ Regulation by enforcement is tougher too, since one bad piece of precedent could mean SEC loses jurisdiction over the world of tokens. CFTC isn't walking that tightrope, but kudos to them for avoiding that practice altogether.
16/ You know, as I type this, I realize there are about 1,873 thoughts running through my head about securities/derivatives/crypto law stuff since I don't advise clients anymore. Maybe I should do one of those "1 fav = 1 unpopular opinion" things...?
17/ Oh and here's the guidance itself. If you read my meandering thought dribbles, you earned it, sport: cftc.gov/PressRoom/Pres…
