This week brought meaningful developments on both sides of the Atlantic. The Commodity Futures Trading Commission began developing a federal framework for certain leveraged retail crypto transactions while proposing new boundaries between regulated event contracts and conventional gambling. In Europe, regulators addressed noncompliant stablecoins and advanced plans for direct supervision of significant crypto-asset service providers. A New York settlement with Celsius co-founder Alex Mashinsky also demonstrated the continuing importance of state enforcement.
CFTC Begins Developing a Federal Framework for Leveraged Crypto Trading
On October 5, the CFTC issued an advance notice of proposed rulemaking concerning retail crypto-asset transactions. The notice begins—but does not complete—a rulemaking process under Section 2(c)(2)(D) of the Commodity Exchange Act.
That provision governs certain commodity transactions offered to retail customers on a leveraged, margined, or financed basis. The agency is considering how it should apply the existing statutory framework to such crypto transactions, which the notice calls “CTXs.” Among other matters, the CFTC is requesting feedback on safeguards against abusive practices, requirements tailored to crypto markets and the possible creation of a “crypto asset market” subcategory within designated contract market registration.
The notice is significant, but it is not yet a proposed or final rule. Comments will be due 60 days after publication in the Federal Register, after which the CFTC may decide whether and how to issue a formal proposal.
For exchanges and other trading platforms, such rules could offer a more defined federal route for certain retail leveraged products. It should not, however, be read as a comprehensive federal licensing regime for spot crypto markets. The agency is working within its existing statutory authority, and businesses may continue to face state money-transmission, virtual-currency and consumer-protection requirements alongside federal commodities regulation.
Companies potentially affected should review their treatment of leverage, financing, actual delivery and customer assets. Those operational details may determine whether a transaction falls within the CFTC provision under consideration.
CFTC Draws New Lines for Prediction Markets and Gambling Products
On October 9, the CFTC proposed to define qualifying event contracts as swaps. The proposal would cover event contracts based on subjects including politics, sports, culture, and weather. According to the agency, contracts satisfying the proposed definition would be commodity derivatives within the CFTC’s exclusive jurisdiction. Comments will be due 30 days after the proposal appears in the Federal Register. CFTC
The agency simultaneously adopted an interim final rule excluding specified casino and sportsbook products from the definition of “swap.” The exclusion covers products such as conventional sportsbook wagers and casino games and is intended to separate those activities from federally regulated event-contract markets. The interim rule becomes effective upon Federal Register publication, although the agency is also accepting comments.
These actions represent a material new phase in the prediction-market debate. Rather than addressing only whether particular contracts may be listed, the CFTC is proposing a broader jurisdictional definition while creating a separate exclusion for products it regards as casino-style gambling.
Prediction-market operators, trading venues and prospective market entrants should examine the economic substance of their contracts rather than relying on product labels. Contract structure, settlement terms and the underlying event may affect whether a product is treated as a federally regulated derivative or an activity subject to state gambling law. Because one component remains a proposal, the ultimate boundary is not yet settled.
ESMA Sets Expectations for Noncompliant Stablecoins
On October 8, the European Securities and Markets Authority published an opinion on services involving stablecoins that do not comply with MiCA.
ESMA’s position is that crypto-asset service providers authorized under the Markets in Crypto-Assets Regulation should stop providing EU clients with services involving noncompliant asset-referenced tokens and e-money tokens. The opinion encompasses a broad range of activities, including trading-platform operation, exchange, order execution, advice, transfers, custody and portfolio management.
National regulators are expected to ensure that providers do not maintain or facilitate new access to affected stablecoins. ESMA says firms should implement technical, contractual and organizational controls preventing customers from acquiring or increasing exposure. Pre-existing exposure should be remediated as soon as possible and no later than three months after publication. Limited services may continue temporarily when necessary for liquidation, conversion, withdrawal, transfer or safekeeping.
This differs from last week’s broader ESMA policy proposals: the new opinion provides an immediate supervisory position on how national authorities should handle services involving currently noncompliant stablecoins.
MiCA-authorized providers should identify every stablecoin available through their interfaces—including through custody, routing and portfolio functions—and document the controls used to restrict additional exposure. A token’s availability outside the EU does not necessarily mean an EU-authorized provider may continue making it accessible to EU clients.
EU Council Advances Direct ESMA Supervision of Major Crypto Firms
On October 9, the Council of the European Union agreed on key elements of its negotiating position for the Market Integration and Supervision Package.
Under the Council’s position, ESMA would directly supervise the most significant cross-border crypto-asset service providers (CASPs). This is narrower than the European Commission’s proposed approach, which would have transferred supervision of all qualifying providers to ESMA. The Council also supports a new full-time ESMA executive board and a two-year transition involving both ESMA and national personnel.
The measure is not final law. The Council must formalize its position, and negotiations with the European Parliament can begin only after Parliament adopts its own position.
Nevertheless, the direction is important for CASPs planning European operations. Larger, cross-border providers could eventually answer directly to ESMA, while smaller firms may remain principally supervised by national authorities. Corporate structure, operational scale and cross-border activity may therefore affect not only licensing obligations but also the identity and intensity of the firm’s regulator.
New York Reaches Settlement with Celsius Co-Founder
On October 9, New York Attorney General Letitia James announced a settlement with Celsius co-founder and former CEO Alex Mashinsky.
The settlement permanently bars Mashinsky from participating in the securities, commodities, and cryptocurrency industries and establishes conditional payment obligations of up to $35 million. The Attorney General’s 2023 lawsuit alleged that Mashinsky made misleading statements about Celsius’s safety, investment practices, and financial condition while engaging in unregistered activity. Mashinsky is separately serving a federal criminal sentence.
The resolution illustrates how state securities, commodities, and registration laws can remain consequential even when federal criminal proceedings and bankruptcy distributions are already underway. For founders and executives, public descriptions of platform safety, yield generation, customer assets, and risk controls can create personal as well as corporate exposure.
Businesses evaluating these developments or their implications for product design, licensing, litigation, or compliance may contact Kelman PLLC to discuss their circumstances.
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