The SEC and CFTC launched a joint initiative called Project Crypto, signing a memorandum of understanding to coordinate joint oversight and rulemaking. The move was endorsed by SEC Chairman Paul Atkins and CFTC Chairman Michael Selig.
The SEC and CFTC partnership established several concrete objectives aimed at reducing regulatory fragmentation in the current market. Staff from both agencies were directed to seek a unified approach to commodities, securities, and other digital tokens.
The SEC developed guidance for already tokenized securities, providing clarity on how the law applies in these cases. Meanwhile, the CFTC made progress in drafting rules for retail crypto transactions and exploring a Designated Contract Market (DCM) registry tailored to leveraged retail trading.
Agency staff were also instructed to develop a joint interpretation of Title VII definitions to reduce overlap between commodity and securities options, CFTC-regulated swaps, and SEC-regulated securities-based swaps.
To further enhance clarity, the CFTC withdrew previous guidance and a 2024 proposal for prediction markets. He also announced plans to develop rules on event contracts, aiming for clear and definitive standards.
Implications for markets, derivatives, and the industry
For derivatives desks and liquidity providers, the agreement reduces a significant source of legal uncertainty that has complicated product design and hedging, as well as raised questions about how some companies operate.
A combined interpretation of Title VII and a new DCM category could change where and how swaps and leveraged crypto options are listed, impacting open interest distribution, margin practices, and platform choice.
Retail platforms offering margin or funded trading face a clearer regulatory path, but will need to adapt operationally to the new DCM requirements. Meanwhile, at the institutional level, there is a clear benefit to the SEC guidance, particularly for tokenized securities, by expanding operational guidance for them.
Market participants should expect a phased implementation: first the codification of the taxonomy, regulatory proposals from agencies and joint guidance on Title VII, with legislation from Congress still needed to solidify long-term jurisdictional boundaries.
