What You Should Know About the CFTC, Part 3: Looking Forward

In Part 3 of this three-part series, we address the current outlook of the CFTC and how it may evolve given changes in leadership.

In late October, the Trump administration nominated Michael Selig to serve as the new CFTC chair after withdrawing the nomination of former Commissioner Brian Quintenz. Earlier this year, Selig joined the SEC Crypto Task Force as chief counsel. Previously, in February 2025, the Trump administration nominated Quintenz to serve as the new CFTC chair, and his nomination hearing before the Senate Agricultural Committee proceeded without incident in June. However, Quintenz’s nomination was subsequently put on hold and later withdrawn on Sept. 30. Once Selig has been confirmed as chairman, the CFTC will become a panel of one. Commissioners Christy Goldsmith-Romero and Summer Mersinger left the commission at the end of May and Commissioner Kristin Johnson left in early September. Acting Chairman Caroline Pham has announced her intent to resign once the new chair takes office. So far, the administration has not nominated any new commissioners.

In response to his nomination, Selig signaled that innovation and crypto assets will be a priority for the CFTC: “I pledge to work tirelessly to facilitate [w]ell-functioning commodity markets, promote [f]reedom, [c]ompetition and [i]nnovation, and help the President make the United States the Crypto Capital of the World.” The nomination also signaled that the CFTC and SEC are expected to collaborate on building a regulatory framework promoting crypto. A year ago, Selig explained how the SEC should switch from a regulation-by-enforcement playbook to a pro-innovation framework, noting that the SEC could withdraw lawsuits against crypto trading venue providers and provide more exemptions from registration requirements.

Acting Chair Pham has set forth an ambitious 2026 agenda of deregulation and rulemaking submitted to the Unified Agenda of Regulatory and Deregulatory Actions compiled by the Office of Management and Budget, which is generally consistent with an agenda of promoting innovation and reducing enforcement. Whether Selig implements some or all of these proposed measures, the trendlines are moving in the same direction. A swift confirmation will be an important first step.

The Tokenization of Finance

While much attention has been directed toward cryptocurrency and decentralized finance, the financial markets are quietly embracing tokenization, which has broad-ranging structural and other implications.

Tokenization involves the use of tokens to digitally represent ownership of financial assets — whether a security, commodity, derivative, currency or contractual right — on a blockchain and more particularly within programable platforms on a blockchain. The potential is great in terms of enhanced efficiency and transparency through automation, which can reduce friction and costs while increasing flexibility (24/7 access) and speed. Take the simple example of cross-border currency transactions, which currently run through the standard process of money transfer (SWIFT) system and can take up to a week to complete. Tokenization has the potential to convert those currency transactions into instantaneous exchanges. The “code is law” — in which smart contracts instantaneously and automatically make pre-programmed decisions — can also reduce legal and operational risks. But recent history has shown there are downsides to the elimination of discretion that can amplify other risks. As discussed in a World Economic Forum article, “[w]hen market participants can instantly and automatically react to even small differences in risk exposures between similar assets, these minute variations get magnified through cascading effects.” The elimination of discretion thus can lead to market runs or flash crashes, something that recently became apparent in the stablecoin markets. These risks may be amplified by the introduction of artificial intelligence in algorithms.

Tokenization of real assets involves the use of tokens to convey and record ownership of real-world assets, such as gold, minerals or other financial products. “Because these are existing …  products, if it’s the same risk, and the same activity, it should be the same regulation,” Acting Chair Pham said in a 2022 keynote address. If the product or activity is truly novel, more clarity and guidance will be needed.

Bottomline: While tokenization is increasingly in use, risks associated with tokenization will need to be managed by effective internal controls implemented consistent with CFTC core principles.

Digital Assets: Security, Commodity or Other?

A lot is changing in the digital marketplace, especially with the new administration and Congress promising a more relaxed regulation of digital assets. While the regulatory landscape is evolving, with new products introduced every day, a couple of things are clear. First, the CFTC and courts have consistently found that digital assets and virtual currency are commodities, similar to intangible commodities, and derivatives based on those commodities fall within the exclusive jurisdiction of the CFTC. Second, the CEA reserved primary jurisdiction over securities to the SEC. After that, it becomes more complicated but hopefully more clarity is imminent.

The SEC has been aggressive over the last four years in asserting its jurisdiction over digital assets, arguing that many are securities under the Howey test because they represent an investment of money in a common enterprise, with the expectation of profits produced by the efforts of others. The Howey cases have largely focused on the marketing of a digital asset. For example, the SEC sued a digital token issuer alleging that it structured and promoted its token as an investment. The district court held that the digital token was “not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the Howey requirements of an investment contract.” That did not end the inquiry, however, as the court examined the totality of circumstances surrounding the distribution of the token and found that the sale and distribution to “institutional buyers” satisfied the Howey test, but “programmatic sales” on third-party exchanges did not. While other litigation reached different conclusions, new management at the SEC has moved to dismiss almost all pending Howey litigation. The dismissals have the net effect of discontinuing the litigation while leaving the underlying decisions in place. Instead, the SEC has announced a “new era” in finance and established a task force headed by Commissioner Hester Peirce, examining and advocating for a more flexible approach going forward. The SEC also has issued various guidance and no action letters designed to facilitate what Chair Atkins has called “American Leadership in the Digital Finance Revolution.”

The tussle over jurisdiction however continues. The Genius Act was signed into law granting primary jurisdiction to the federal and state banking authorities over stablecoins (digital assets designed for payment). The House of Representatives recently passed a market structure bill, the Digital Asset Market Clarity Act of 2025, which would increase the regulatory authority of the CFTC and grant it primary jurisdiction with respect to digital commodities. The act also establishes new registration requirements for digital commodity exchanges, brokers and dealers. The Senate is considering its own bills (one fashioned by the Agriculture Committee and another by the Finance Committee), which likely will balance authority between the SEC and CFTC.

For now, the CFTC is shifting from enforcement-first to clarity-first and emphasizing innovation. After seeking input from industry, the CFTC permitted 24/7 trading of crypto assets to go live in April and trading of long-dated futures contracts commenced on Coinbase in July. Acting Chair Pham also has announced a “crypto sprint” to implement recommendations from the President’s Working Group on Digital Asset Markets, “[p]roviding regulatory clarity now and fostering innovation in digital asset markets [to] deliver on the Administration’s promise to usher in a Golden Age of Crypto.” In a speech at the annual meeting of the Securities Industry and Financial Markets Association on Oct. 21, Acting Chair Pham stated that she expects “we will be live with listed spot crypto trading on at least one of our designated contract markets — our futures exchanges — by the end of the year.” To that end, the CFTC invited stakeholders to comment on (i) trading and clearing of perpetual futures, (ii) trading and clearing of derivatives on a 24/7 basis, and (iii) how to list spot crypto asset contracts on DCMs, including by use of its exemptive authority, “section 2(c)(2)(D) of the Commodity Exchange Act, Part 40 of CFTC regulations, and whether there are any implications under the securities laws or regulations with respect to an SEC framework for trading of non-security assets that are part of an investment contract.” In the meantime, Acting Chair Pham requested that the DOE not charge regulatory violations involving digital assets, including registration requirements, unless there is evidence that the participant knew of the requirement and violated it willingly. In addition, the CFTC has rescinded certain advisories related to digital assets, including an advisory that had imposed extra requirements on digital asset derivatives. All of this seems designed to encourage onshoring of digital trading and clearing on CFTC-registered entities subject to CFTC oversight.

Bottomline: It seems likely that any new digital assets legislation will expand the CFTC’s authority to regulate spot products and other digital products. Similar expansions in the past addressing FX and swaps led to authorization of new registrants, such as the retail foreign exchange dealer (RFED) and swap dealer. A similar digital expansion should lead to creation of new digital registrants, with more flexible rules designed to ensure digital products trading and clearing are consistent with the CFTC’s core principles.

Event Contracts

Event contracts are derivatives whose payoff depends on the occurrence or nonoccurrence of specific events. These are not new. Binary options have been in existence since the 1980s and the CFTC approved the first contract market dedicated to trading event contracts in 2004. Since then, however, event contracts have expanded into new and wide-ranging areas. The CME began offering event futures in 2022 on the predicted closing prices of bitcoin and other commodities and indices. More recently, Kalshi and Crypto.com, both designated contract markets, have expanded aggressively their event contract offerings to offer futures on nonfinancial events such as the outcome of the Academy Awards, sporting events or political elections. The market for political events proved controversial, with the CFTC initially rejecting such contracts as contrary to the public interest and outside its authority under the CEA. Kalshi successfully challenged that decision in federal court (on administrative procedural grounds), winning approval to self-certify event futures on elections and other outcomes. Others followed suit self-certifying hundreds of event contracts. The CFTC recently dropped its appeal of this decision.

Several state and Indian tribe gaming authorities have challenged the propriety of sporting event contracts, insisting that they must comply with local gaming laws and raising several interesting questions. For example, are all event contracts “swaps” subject to CFTC regulation? The swaps definition requires an “event or contingency associated with a potential financial, economic, or commercial consequence.” Do event contracts predicated on sporting events, entertainment awards or political elections constitute events associated with a potential financial or economic risk that the CEA was designed to address? Even if the particular event contract is a swap, the CEA charges the CFTC with determining whether the particular event contract is “contrary to the public interest” because it involves “activity that is unlawful under any Federal or State law; terrorism; assassination; war; gaming; or other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest.” Do event contracts predicated on sporting events constitute gaming under relevant state or tribal laws, and if so, should they be regulated by the states and not the CFTC, particularly when tribal gaming businesses are implicated? If event contracts are swaps, what does that say about the betting and wagers placed in current gaming businesses? Is their in-state (and not interstate) betting activity sufficient to avoid CEA application? Even if the contracts are swaps regulated by the CFTC, does the CEA preempt the field, thereby precluding state and tribal regulation of interstate event contracts? Finally, given the retail focus of event contracts, what additional protections are necessary or advisable to enhance customer protection, deter manipulation and ensure compliance with core principles?

The CFTC was adamant that election outcome contracts are not in the public interest, and then-Chairman Rostin Behnam warned that they would effectively turn the commission into an “election cop,” something he claimed it is not equipped to do. Acting Chair Pham had planned to host a public roundtable at the conclusion of the CFTC’s recent requests for information on prediction markets, which signaled a more tolerant approach in its press release. According to Acting Chair Pham, the “CFTC must break with its past hostility to innovation and take a forward-looking approach to the [future] possibilities of” prediction markets. However, the roundtable was canceled so that it could be reshaped by the incoming chair into a “forum or hearing” that would “include several panels representing a broad array of stakeholder viewpoints.” In the meantime, questions persist regarding the self-certification process, which some contend is broken, and about CFTC oversight of event contracts that are outside the CFTC’s traditional regulatory focus.

Bottomline: Given their predominantly retail customers, it is important that event contracts have a regulatory home where they are subject to comprehensive regulatory oversight. The CFTC’s history with swaps regulation (and the traditional treatment of event contracts as swaps) positions the CFTC as the best-equipped regulator to oversee these markets. How the CFTC defines innovation consistent with its core principles will go a long way toward determining how these new contracts are marketed and managed responsibly.

New Frontiers: AI and Beyond

The commodity and derivative markets continue to grow and innovate in remarkable ways. Artificial intelligence presents greater opportunities for innovation as well as unique challenges. AI is a potentially valuable tool and a force multiplier, particularly generative AI. As the CFTC Technical Advisory Committee (TAC) report states: “the potential of AI and other evolving technologies” lies in its ability “to improve automated processes governing core functions, including risk management, surveillance, fraud detection, and the identification, execution, and back-testing of trading strategies,” as well as its potential to collect, analyze and use massive amounts of information, particularly in trading and portfolio management. But there are challenges involving governance and oversight, algorithm development, testing and monitoring, and transparency. In December 2024, the CFTC issued a staff advisory outlining the use cases for AI and reminding market participants to adhere to existing regulations when using AI.

Acting Chair Pham has not prioritized AI over the last year. In 2024, however, she expressed that given the use of AI for years within the financial industry, the CFTC should leverage “existing risk governance frameworks and risk management disciplines to identify, measure, monitor, and control emerging risks and new technologies.” Still, the CFTC’s Office of Consumer Education and Outreach has issued a consumer advisory to caution consumers from falling victim to generative AI scams.

Bottomline: The derivative markets keep changing in creative ways, as technology continues to play an outsized role. No longer in the background, AI is playing an outsized role in effecting and implementing these innovations, with new and potentially surprising impacts on the markets, requiring diligent and effective risk management.