The Commodity Futures Trading Commission (“CFTC”) is an independent federal regulatory agency with the jurisdiction to regulate the futures markets, swaps, options, and certain retail commodity and retail foreign exchange transactions (generally referred to as “commodity interests”).  The CFTC describes its mission “as promoting the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation.”

Pursuant to the Commodity Exchange Act (“CEA”), the CFTC requires that individuals and entities that perform certain functions or engage in specified activities register with the CFTC.  In addition to registration, the CFTC’s has established a comprehensive regulatory regime that covers trade execution, reporting, clearing, recordkeeping, market conduct, and other standards when trading in commodity interests.  One limitation to the CFTC’s regulatory jurisdiction is that it does not have the authority to regulate trading activity in an underlying commodity.  To use an example, the CFTC regulates trading in oil derivatives, but does not regulate the purchase and sale of oil.  Although the CFTC generally does not have the authority to regulate trading in underlying commodities, it does have the authority to pursue fraudulent or manipulative conduct in the underlying commodities markets.

One existing caveat to the regulatory framework summarized above relates to so-called “retail commodity transactions.”  The CEA provides that, absent an exemption, commodity transactions that involve at least one retail participant and are offered or executed on a leveraged, margined, or financed basis are regulated as futures contracts.  This means that the CFTC has full regulatory authority over the underlying commodity transactions, including transactions in digital assets, that fall within the scope of retail commodity transactions.