CFTC staff won't recommend enforcement if apps market an exchange and take a cut

The Commodity Futures Trading Commission's Market Participants Division said Thursday it will not recommend enforcement against makers of qualifying software for failing to register as introducing brokers, even when those apps market a named exchange, steer users to it, and take a cut of trading revenue.

Staff Letter 26-25, signed by MPD Director DJ Hennes, takes a position the division granted in March only to Phantom Technologies, a developer of self-custodial crypto-wallet software, and makes it available to any provider that meets the conditions. The word "passive" is doing less work than those conditions. A provider that may solicit users to a named exchange and take a cut of trading revenue is not a silent utility. MPD pointed to inquiries from similarly situated providers and their counsel. Under the Commission's own staff-letter rules, only a named beneficiary can rely on a no-action letter, so the March relief could not be used by anyone else.

The covered activity is software that sits on the user's device and lets that user transmit orders directly to registrants, while the provider has no affirmative involvement with any particular order. The letter is not limited to crypto-asset software. It does say providers may market registrants and particular derivatives, introduce or solicit users to specific registrants, and offer standalone or embedded wallet interfaces.

An introducing broker is the CFTC category for a person who solicits or accepts futures orders but does not hold customer funds. Letter 26-25 says MPD will not recommend an enforcement action against a qualifying provider for failing to register as one under CEA Section 4d(g), or against relevant personnel for failing to register as associated persons under Section 4k(1), solely because they engaged in those covered activities.

Two staffs, two rulebooks on the same interface

On April 13, the SEC's Division of Trading and Markets said it would not object to certain non-custodial user interfaces operating without broker-dealer registration. That statement is narrower on sales conduct: no solicitation of investors for specific transactions, and compensation limited to an objective charge from the user, not from another party based on whether a trade occurs. Absent Commission action, the SEC statement is treated as withdrawn five years after April 13.

Thursday's CFTC letter draws the non-custodial line in a different place. A provider may market a named futures exchange, introduce users to that registrant, charge the user a transaction-based fee, and take a specified share of the registrant's trading revenue.

A developer building one interface therefore faces two staff rulebooks for the same user. If the tap is a crypto-asset security, SEC staff will not treat the interface as a broker only if the provider does not steer the user into a named trade and does not take a cut from anyone but the user. If the tap is a futures order onto a CFTC-registered exchange, MPD will not recommend introducing-broker enforcement for that marketing and that cut, provided the conditions hold.

Custody, orders, and who co-signs

Three conditions decide whether that business can actually run.

The software cannot hold, control, or take custody of user assets. Margin and other property securing positions stay with the clearinghouse or a qualifying futures commission merchant, not with the app. The developer does not become the place the money sits.

The software cannot generate express buy or sell signals and cannot exercise discretion over routing or execution. Users must be onboarded as direct members of a designated contract market, a CFTC-registered exchange, or as customers of a registered futures commission merchant or introducing broker, and they must keep independent access to that registrant rather than being locked into the software. The developer does not pick the path of the order and does not become the only door to the account.

The gate that decides whether any of this is used is a written undertaking. The provider and each partnered registrant must accept joint and several liability for violations in the covered activity and consent to Commission jurisdiction, with each undertaking filed with the division. A registered futures commission merchant, introducing broker, or exchange has to agree to be on the hook for the software firm's violations before that firm can rely on the letter. The letter also requires a notice from the provider accepting the conditions. Thursday's letter and the accompanying release name no partnered registrant and list no filed notices.

The letter also requires disclosure of the relationship with each registrant, potential conflicts including fees, and the standard Regulation 1.55(b) futures risk disclosure, with the user's acknowledgment retained.

The position lasts only until the effective date of Commission rulemaking or guidance addressing software developers. The letter gives no calendar date for that rule. It represents the division's views only, does not necessarily represent the Commission's, and is not binding on the Commission. MPD reserved the right to condition, modify, suspend, terminate, or otherwise restrict the position, and said changed, omitted, or different material facts may void it.

Exchanges and brokers stay registered

Nothing in Letter 26-25 exempts a designated contract market, a clearinghouse, a futures commission merchant, or an introducing broker from registration. The software relief covers only the provider's introducing-broker exposure and its personnel's associated-person exposure.

The CFTC's release and the letter name no recipient besides the class of qualifying providers. Kalshi is already a designated contract market, dated November 3, 2020, with a January 17, 2025 modification to permit intermediated futures, so it sits on the registered-exchange side of this letter, not as a software vendor seeking broker relief.

On Tuesday the Senate rejected cloture on the motion to proceed to H.R. 3633, the Digital Asset Market Clarity Act, 49 yeas to 50 nays, with one senator not voting, short of the three-fifths threshold. XRP funds fall 11.6% after Senate stalls crypto bill. Thursday's staff letter is not a substitute for that bill: it does not divide agency jurisdiction, set a market-structure statute, or bind the Commission.

At the 4 p.m. ET close, Coinbase (COIN) finished at $173.97, up 5.75%, and Robinhood (HOOD) closed at $109.81, up 5.16%. The crypto-industry stock fund DBITQ, which etf.net grades D in Crypto Industry Equities and holds Coinbase as its largest position at 11.4%, rose 3.45% to $25.19. The digital-asset equity fund BDAPP, graded B in the same category, with Coinbase at 9.4%, rose 3.70% to $19.33. No official document ties those prints to Letter 26-25; they closed in the same session as an SEC order creating a temporary, conditional path for trading venues to handle tokenized representations of listed U.S. stocks.

A qualifying provider can now do on Friday morning what it could not do on Wednesday without its own letter: market a named exchange, take a cut of trading revenue, and rely on the class-wide position. Before any of that reaches a user, a registrant has to co-sign the joint-liability undertaking, the provider has to file the notice accepting the conditions and Commission jurisdiction, and the software has to stay inside the custody and order-handling limits. Until the Commission writes a rule, MPD can pull the position.