CFTC主席 Michael Selig：谈永续合约、预测市场与美国加密行业

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Welcome back, everyone. Today we have a very special episode of the Empire podcast. As you can tell, I am not Jason Yanowitz. My name is Rob Hadick. I'm a general partner at Dragonfly and a co-host of the weekly roundup podcast that we do here on Empire.

Today we have an awesome guest, Chairman of the CFTC, Michael Selig. Michael, thank you for coming on the podcast.

Thanks for having me.

Chair Selig has been incredibly effective in his first 5 months on the job as the 16th chair of the CFTC. Last Friday, he approved the first true Bitcoin perpetual contract on a U.S.-regulated exchange. He opened the door for onshore prediction markets, and he's issued guidance on 24/7 trading and clearing.

Before the CFTC, he was the chief counsel of the SEC's crypto task force and a senior adviser to Paul Atkins. He also started his career as a clerk at the CFTC about a decade ago and spent some time in private practice.

Today we're going to dig into some of those topics: perpetuals, prediction markets, 24/7 clearing, and Chair Selig's approach to regulation. Chairman, we'll jump right into it. Thank you for being here.

For the first question, I want to set the stage a little bit. You've made some serious pro-innovation headlines since you started. I think everybody in the industry has been really excited about the initial phase of the CFTC in these first 6 months. You've publicly made waves and put out guidance on a few of the things I just talked about: perps, prediction markets, and 24/7 trading.

You've indicated there's more to come in terms of the harmonization that you're doing with the SEC as well. How much of this did you feel was part of your mandate walking into the role, versus how much has it evolved since you've been in the seat? And how have you changed your perspective? And that was for 6 months.

Well, it's a pleasure to be here with you. In response to your question, I served in private practice, as you just suggested. I was a partner at Willkie Farr & Gallagher, representing clients in the technology and financial markets spaces, many of whom were in the crypto markets. They were just absolutely pushed out of the country by the last administration. It was regulation by enforcement, lawfare, and a lack of clear guidelines and rules.

Under the Trump administration, we're reversing all of that. We're going to do the exact opposite. We're going to regulate through clear rules and regulations. We're not going to have the Enforcement Division setting policy. We're going to return the Enforcement Division to its core functions of policing fraud, manipulation, insider trading, and other abuses, not looking for little foot faults and gotchas, trying to collect civil penalties when what we really want here is a culture of compliance.

We want crypto to come into our financial markets and be a player like any other market. We're shifting back to our core mandate of market integrity, responsible innovation, and fair competition. Part of that, of course, comes from the President. We had a President's Working Group on Digital Asset Markets report. I was part of that endeavor when I was at the SEC, and it lays out what I think is really the roadmap for gold-standard markets in the United States that incorporate crypto assets, blockchain, and all manner of new technologies.

A core component of that is bringing the perp markets—perpetual futures markets—back to the United States. Another piece of it, of course, is the stablecoin initiative. We're well underway implementing the GENIUS Act, and the CLARITY Act is really sitting ready to go. We're trying to get that onto the President's desk.

There's a lot going on, but the President has been very clear: we're going to make the United States the crypto capital of the world. I believe it is today. We've ended regulation by enforcement, we've passed GENIUS, we've got clarity on the way, and I think it's a new day at the SEC and at the CFTC.

1. Working With The SEC

We'll talk a little bit about CLARITY later, but that's obviously on everybody's mind as well.

You recently announced Project Crypto—I think back in January—with Chair Atkins over at the SEC. The point, or at least the stated point, was to harmonize federal oversight of digital asset markets. Can you talk to us a little bit about how that working relationship is with the SEC and how you think about the division of labor?

Absolutely. Coming from the SEC, I had a real desire to harmonize when I got into the seat at the CFTC, and Chairman Atkins really deserves the credit for this initiative. He launched Project Crypto last year, and it truly was a historic moment, I think, turning the page from Gary Gensler's war on crypto that we saw under the last administration.

The idea behind Project Crypto is to modernize the securities rules and regulations, and now the CFTC's commodity derivatives rules and regulations, for blockchain, crypto, and all the new innovations that are happening in our market. The reality is that our rules and regulations just were not set up for this. They did not contemplate it.

That's why you saw the square-peg-round-hole approach of the last administration, fitting crypto, blockchain, and new technologies into rules and regulations that were designed for a totally different type of technology. Our rules at the CFTC are principles-based, which makes them a little bit more flexible when it comes to adapting to and allowing for these new innovations. The CFTC is lucky to have that because the SEC's rules are a bit more prescriptive.

We're working together. We've now joined forces with the SEC on Project Crypto, and we need to make sure that things are harmonized and consistent across agencies. If you're trading a perp on-chain related to a commodity product, such as a Bitcoin perp, the rules shouldn't be so different from trading an NVIDIA perp on the security side.

We're working closely to get that done. We're also very keen to get substituted compliance in place. If you're a securities exchange and you want to offer some commodity products, we want to make that possible. We want to allow for a single primary regulator, either the SEC or the CFTC, to enable the market to offer these products that are cross-jurisdictional. That should be on both sides—a two-way street.

We're working very hard to get that done. We're also working very hard to make sure that things like whether you're considered a U.S. person—determining whether the SEC or the CFTC has jurisdiction over certain persons who are offshore or onshore—are consistent, because we can't have these inconsistent standards. We can't have enforcement available at one agency and not the other. We want to make sure all of that is consistent.

Is there a framework in place for how, when something comes up, you decide who takes the first crack at it or how you potentially divide the labor initially? Or is it a little bit more, to your point, flexible, rules-based, and maybe common sense?

We have a cross-agency team set up, and one of the folks on my staff is a co-head of that team. Another person on Chairman Atkins's staff is the other co-head, and they are leading the initiative. They have regular meetings and are coordinating on policy endeavors.

I've announced previously that we have a number of requests for comment coming that are joint between the 2 agencies. One of those relates to the reporting of certain over-the-counter derivatives. The other is related to portfolio margining, which I think is a huge win for the industry.

The lack of the ability to margin your positions on the securities side cross-jurisdictionally with the commodity side has been a huge hindrance because people are now posting duplicative margin, whether they're a broker-dealer or a futures commission merchant. We're trying to fix all of that, and there are a number of really exciting initiatives ahead.

2. Bringing Perps To The U.S

I think portfolio margin is going to be a huge unlock, so I'm really excited about that.

Let's move a little bit into the perpetuals, which was the big move—the news out of last week. I think a lot of people were very excited to see you release a few coordinated actions. I believe there was a policy statement that encourages DCMs wanting to list perps on other assets, like ag products, metals, equity securities, securities indexes, and so on, to submit under Regulation 40.3 for a case-by-case review.

You also allowed for 24/7 trading and issued a clearing staff advisory with expectations for the DCMs, SEFs, DCOs, and FCMs that want to extend to 24/7 continuous operations. You also approved several entities for these perpetuals.

What would you say is the biggest takeaway that you want the general public to get out of that big day last Friday?

The takeaway is that the United States is going to lead on novel derivatives products, on crypto, and on innovation at large. The CFTC's mandate is responsible innovation, and the responsible piece is important.

We are not allowing for the 1,000x leverage or 100x leverage that you would see offshore. We're going to start with reasonable leverage, up to 10x, in the United States.

And we're going to start with crypto. The president has been very clear in the president's working group report that crypto perpetuals are an important piece of the crypto market, and we want that here in the United States. But, as we state in our release, it's not necessarily appropriate for every other asset class. For certain things, especially in the agricultural space—livestock futures, grain futures, corn futures, cotton futures—we don't expect to see that, and we have some concerns around the deliverable supply and how that would work.

We're open to discussing that, but we do not expect to see that in the immediate future or in the midterm. But we're open for innovation. We want to see novel markets survive and thrive here in the United States, and perpetuals are just a great example of this.

It saves investors money when they're transacting in perpetual products. They're paying lower transaction fees to exchanges. Exchanges should be open to this because it's going to allow for a whole new marketplace within the United States: new products, new trading. Of course, some of the fees may be lower, but that's good for investors, and I think overall it's going to benefit the exchanges in the long term.

Yeah, I think a lot of the through line that I've seen from a lot of the things that you have done and that I've heard you talk about has been better markets for investors, better for the end customer, which I think is really important. You made a point there around responsible leverage, and I want to push on that a little bit and understand: Is responsible leverage a stagnant number? Is it a number that you've mathematically come up with now and think is appropriate? Does that change over time? Does it change across markets? How do you think about that in the future?

We've seen some of these products, which were called perpetual-style contracts, launched on Bitnomial and Coinbase and other exchanges, and we've taken in a lot of data. We've studied the markets. They were offered at lower margin and lower leverage ratios, and that's worked very well.

We will continue to assess extending that out to the extent it makes sense, but we have to protect investors. We have a mandate to make sure that investors are protected and customer funds are protected, and that we're not going to have another financial crisis because of some innovative new product.

We want the innovation, but we have to make sure that it's not going to cause any sort of concerns to the broader market. And so we're studying it, we're evaluating it, but to start out now, we're keeping the leverage fairly limited.

Makes sense. What do you see next for perps? We've got the BTC perpetual. I think one entity or a couple of people have already applied to try to maybe get more out there. Do you believe there's going to be more listings, more approved entities, and more onshoring of international exchanges? How do you see this evolving over the next year or two?

Our goal is to make the United States the crypto capital of the world. That means that we want to bring the offshore exchanges, the offshore products and brokers, and all of this great economic activity back into the United States. It really was pushed offshore over the past decade through lawfare and through regulation by enforcement, and we're bringing it back.

Part of that, yes, is to get the offshore exchanges domesticated here in the U.S. and make that available under a regulated framework. Our aim is not just to bring this economic activity back to the United States. It's to bring it back with responsible regulation that protects investors and has made the United States the gold-standard market for generations.

We believe that crypto is a really fantastic technology. It can allow for settlement faster than anything we've seen in our traditional markets. It can allow for margin to be exchanged instantaneously, 24/7/365. It makes capital much more efficient, and so we're very excited about that.

But we do need regulation around these markets. We do not believe that you just bring it in here and it's going to thrive and succeed when you don't have certain guardrails and controls. That's always made our markets great. It has always protected investors.

If you look back to, for example, FTX, the entity that didn't fail—the entity that had customer funds protected—was the CFTC-regulated entity. And so we believe in the regulation that we have been enforcing for generations and will continue to do so.

That's great. So, obviously, a lot of this has been about crypto perpetuals, and we've started there, obviously, with the Bitcoin perpetuals. You mentioned earlier that not all products are going to be right for the perpetual future. How do you expect this to evolve into other, as crypto people would call it, real-world assets, or other traditional regulated markets? And where do you see that process playing out?

That's right. The way that we have structured this under our release—the release relating to 40.3 that you mentioned—for crypto, digital commodities are one class of crypto assets that, under a joint interpretation with the SEC, we've developed some rules around.

Digital commodities include things like Bitcoin, Ether, Solana, and a number of other tokens that we have provided examples of in the release, as well as others that have the same characteristics. These are tokens associated with the network that are deriving their value from that network.

Those assets can be self-certified. To the extent people want to offer perpetual contracts on those assets, we have seen some self-certifications start to come in. That allows exchanges to list quickly and get these products up and running. They have very similar characteristics.

There is some analysis that needs to be done when going through and listing those. The contracts can't be readily susceptible to manipulation, and so on and so forth. So it's not anything goes, but digital commodities have a quicker path to get into the United States through a perpetual contract.

But there are other types of crypto assets that I'll mention. One class is digital collectibles. We've put things in that bucket such as, of course, non-fungible tokens, but also some of the meme coins and things like that.

Those still need to go through a process with staff and engagement. Securities, whether they're digital securities under that guidance or just a regular security like an NVIDIA perpetual, actually go through a process between the CFTC and the SEC. So folks will need to engage with us to the extent they want to list those.

Then, moving beyond crypto, as I mentioned, a lot of these markets are not appropriate for perpetuals in our view, and so we expect firms to engage with us very heavily to the extent someone is interested in offering them in the agricultural space. Our view is that there's going to be significant deliverable supply issues there and significant economic considerations, so it's likely not suited.

There are regional markets for a lot of these commodities. It's just a very different set of dynamics that you have with these physical commodities that come to market. They have a harvest season and so on and so forth, unlike the digital assets and potentially securities and other things.

We're also looking at metals and so on and so forth. We think there are very different dynamics with a lot of these physical commodities, so we expect engagement from firms that look to list those. But they're not going to be listing them anytime soon.

Is physical settlement the one area where you see the biggest problem, or are there other areas as well?

It's largely these physical commodities. We're happy to engage on it and work through it, but it was a very historic moment to approve crypto perpetuals.

We've not approved a new type of derivative in over a decade at the CFTC. So this was a big moment, a watershed moment, and we are excited to see other types of perpetual products come to market, but it's going to take time. I hope the market has that understanding. Come engage with us. Let's think it through. But it's not a flip-the-switch moment.

We're going to do this gradually to make sure that investors are protected and that it doesn't impact these underlying markets because, of course, we oversee a $1.2 quadrillion notional market. A large piece of that—the United States—is over $600 trillion notional in terms of the global derivatives market, which I mentioned is $1.2 quadrillion.

We're overseeing a ton of large transactions. If this is going to impact some of that, we need to consider it before we allow those products to come to market.

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4. How To Regulate DeFi?

Yeah, absolutely. And you're already moving, I think, at an incredible pace if you look at the history of the CFTC.

So, it's great to see. For both perps and prediction markets, which we'll talk about in a second, I think there's a lot of question in the market right now about how DeFi might fit into your requirements and how maybe DeFi applications might also come onshore. What would you expect to be required of them? How could a DeFi application come onshore and operate legally in the U.S. under CFTC oversight?

Well, DeFi is sort of this buzzword. We think about on-chain markets, so there's a wide range of on-chain applications and software tools, from Uniswap—things where you're swapping assets back and forth—to lending protocols like Aave, to some of these perpetuals protocols, things like Hyperliquid that we're seeing in the markets. We're evaluating all of that. We're interested in it, and we believe in on-chain markets. We believe in the technology.

If you look to the President's Working Group report that I mentioned earlier, it talks about onshoring DeFi and creating a legal and compliant path for DeFi. But there are regulatory considerations on the derivative side. Under the CFTC's regulatory framework, futures contracts are always required to trade on a registered exchange with the CFTC. So, there's not an over-the-counter market for futures contracts.

We have characterized perpetual contracts as futures. There are ways to structure them as swaps as well, but by and large, these products that are coming into the United States now are being treated as futures contracts. The market for these products has always been CFTC-regulated, on an exchange and cleared through a central clearinghouse, and typically intermediated through brokers. But that's becoming less common as we're starting to see some direct-to-exchange models come to bear.

That infrastructure is important. It serves a lot of really critical functions. It protects investors, it ensures that we have market integrity, and it enables us to bring enforcement actions when we see fraud and manipulation. Of course, we surveil these markets.

So, as you move on-chain, we are evaluating all sorts of new tools to help us enforce, police, and oversee these markets. For example, we use tools like Chainalysis to understand what's going on on-chain. We're talking to exchanges that have a blockchain-based exchange model to get data and really understand how that works.

But by and large, these platforms have always been registered with us, so we are evaluating how to deal with that. I view a lot of these on-chain software systems, as I refer to them, along a spectrum. We have systems that are totally autonomous, that are not centrally administered. They don't have an administrator who's holding a key or a bunch of people holding multisig keys administering the smart contracts.

A limited number of these are like that. A lot of them do have that sort of dynamic still. I think there's a path to gradually decentralize and get beyond that. But the reality is, there are security reasons for people to be holding keys. We don't want to discourage that where there are real, genuine reasons to be doing so.

You do have this spectrum of fully decentralized, autonomous software systems and, on the other end, these more centrally administered systems that take advantage of blockchain technology and do a lot of great things. There are a lot of wonderful use cases for transferring margin 24/7/365, the ability to use auto-deleveraging in real time, and that sort of thing through smart contracts. That's all very interesting.

But it's still more akin to what we see in our markets today. For example, if NASDAQ put its entire system on-chain, it's still NASDAQ. It doesn't necessarily mean that we should regulate everything differently. Aspects of it, yes, because certain things are automated and certain things are taking advantage of this kind of global computer system. So, we're evaluating all that, and we want to get to the right place.

We're working together, of course, with the Hill, as well as the CLARITY Act, which can impact some of this. But by and large, when it comes to derivatives, the products have to trade on a regulated platform—a registered platform. We want to get to the minimum effective dose of regulation. We want to right-size regulation and tailor it for these new software systems.

But then, when you get into the over-the-counter world, which has historically been what are called eligible contract participants, these are very sophisticated firms. You talk about accredited investors on your show quite a bit. That's on the securities side. This is like an ultra-accredited investor: a very high-net-worth, highly sophisticated entity. So, it's very limited.

This came out of the financial crisis. Swaps and over-the-counter swaps markets were largely unregulated, but they were only for sophisticated firms. Then, with the financial crisis, we got Dodd-Frank, and a lot of that came under a largely more regulated framework in the United States. Some of it moved on-exchange, some of it remains off-exchange, but it's always been highly sophisticated firms.

We're evaluating and we're open to considering whether we open that up and allow for more flexibility—allow for different standards of qualification for an eligible contract participant. That's something we've got a lot of industry input on, and we'll continue to evaluate.

What we're thinking about first and foremost is likely a model where we have some sort of oversight and some ability to know who's trading in the market, so we can still police for things like insider trading and market manipulation, all of that. But then allow for a lot of the great features of blockchain: the ability to transact very seamlessly through your wallet, self-custody your assets, transact 24/7/365, and have some degree of being able not to transmit your identity to everybody in the market.

Being able to preserve some privacy is important, but we also need to, as a regulator, understand who's trading in these markets.

5. Becoming The Crypto Capital of The World

I love the way you talk about it as a software system, because I'm sure that's very helpful when you're talking to someone who's a little less conversant with what happens in the space. An analogy I use a lot with investors in my fund is that, at the end of the day, this is software—just a different type of software—and this is software that's helping capital markets operate more efficiently.

That's great. You mentioned a little bit how you're working with the Hill, and you mentioned the CLARITY Act. What do you think needs to be done from a legislative perspective to continue to allow you, and to allow the market, to create more innovation onshore here in the U.S. versus internationally?

We can't overregulate blockchain technology, crypto assets, or really any of these exciting technologies—things like AI and prediction markets. We've got to come up with a regulatory framework that protects investors and does what it needs to do.

Our statute is very clear. We need to ensure that our markets have integrity, that they're resilient, that they're vibrant, that investors are protected, and that customer funds are safe. But we cannot strangle the technology for the sake of that sort of regulation. We've got to find a way to thread the needle and achieve our mission, but also allow for this sort of innovation.

I think what we saw under the last administration was this attempt to say, "You're a crypto exchange? Go register as a national securities exchange. You're a DeFi protocol doing perpetuals? Go register as a full designated contract market and exchange with the CFTC," with no exemptions and no considerations for the way the technology works.

That's not going to allow for the United States to be the crypto capital of the world. We've got to tailor our rules and regulations. We've got to do things like, for example, putting out a no-action position on self-custodial wallets accessing derivatives exchanges.

There was a lot of concern, especially due to the last administration, that these wallet providers would have to register with the SEC and the CFTC as broker-dealers, futures commission merchants, or introducing brokers. We've clarified that, as has the SEC. These software providers are providing software. They're not taking custody, and they're not engaging in the typical broker activities.

They're allowing people to self-transact, access markets, and utilize their own funds. That's something that we want to have in the United States. If we don't allow for that, we don't have crypto in the United States. The whole premise of this technology, in my view, is self-custody and the ability to transact freely.

So, we're working on getting that right. We've done a lot already, and we've got a lot more planned. But the goal here at the CFTC and throughout this administration is to create a minimum-effective-dose-of-regulation approach, where we ensure that investors are protected, funds are safe, and our markets have integrity—that they're the gold standard throughout the world.

They are the envy of the world today, and we want to keep them that way, but also allow for all this new innovation in our markets.

6. Prediction Markets

Yeah, it's amazing. Moving on to prediction markets, they've moved very quickly from niche, not that long ago, to mainstream. They've really taken up a lot of mind space, I know, for policymakers, legislators, regulators, yourself, and others.

What role do you actually think prediction markets serve in both price discovery and information aggregation? Do you think they potentially replace traditional polling and forecasting?

Well, prediction markets aren't new. We've had these since the 1990s. They started out actually with the Iowa Electronic Market, which was a nonprofit educational initiative.

And they came into the CFTC and asked for a no-action letter because what they wanted to offer—prediction markets—are derivative contracts. And the CFTC said, “That’s a great idea. We’re going to grant your request.” We provided a no-action letter.

Those markets really flourished in the U.S. We’ve seen so many great predictions coming out of these markets. They’ve often, particularly in recent years, been much more accurate than polling. And so we started to see an explosion.

We saw multiple nonprofit endeavors, and a number of exchanges then cropped up that registered with us to offer this on a larger basis beyond nonprofit, where you can actually put larger amounts of money at risk and engage in a larger number of contracts and different types of markets. The CFTC then fought it because they didn’t like the idea, and in particular, under the last administration, they did not want to see these come out ahead of the 2024 election.

Kalshi, one of the exchanges that’s registered with us, sued the CFTC, won its lawsuit, and then was able to offer these products. Since then, we’ve seen an explosion in all sorts of new contracts. It turned out that once Kalshi was able to offer its contracts, others joined as well, like Crypto.com.

These contracts were much more accurate, much more reliable than the polls. We saw this Iowa poll come out that said it was going to be a landslide for Kamala Harris. Of course, that was not the case. President Trump wanted a landslide, and the prediction markets had it exactly right. We’ve seen many such cases.

Of course, in instances where, for example, there’s very tight control over the information, the pope is a great example. The decision around the pope—the prediction markets didn’t get it right because the information was kept very safe. That’s also, I think, a really interesting tool for national security, for protecting information, and for discovering where there are leaks.

So we’re very excited about the technology, but we’re merit-neutral. If people want to trade these products, they can go trade these products. We’re not in the business of saying, “You can trade this contract or that contract,” or telling people what the best way to invest their money is. We’re in the business of making sure that we have investor protections, customer protections, rules and regulations, reasonable guardrails for all these markets, and disclosure so people understand what they’re doing.

That’s been our approach to this. We are seeing an actual explosion in the number of contracts listed. Our staff is working very hard to review these contracts, ensure that they’re not readily susceptible to manipulation, and take action against firms and persons that are insider trading, manipulating the markets, and engaging in bad activity.

But we are excited about these markets. We do believe that they offer a very positive externality for society in the sense that they’re producing very valuable data. It’s not a surprise that you see CNBC, CNN, Fox News, The Wall Street Journal, ESPN, and all of these major media outlets entering into deals with the prediction markets.

It’s also not a surprise that you see the New York Stock Exchange and ICE entering into investment arrangements with some of these prediction markets and then utilizing that data. I was on a panel with Lynn Martin, the president of the New York Stock Exchange, a handful of months ago, and she was talking about—and I found it fascinating—how much data the New York Stock Exchange and ICE are generating from the prediction markets and how that’s been really valuable for a whole range of their business units.

So we’re seeing that across the board. We believe that this will be a really great benefit to society: to have a check on the fake news and the fake polls, and to have really reliable data that we can use to price a wide range of assets. We can figure out, for example, whether there’s a price disparity in an index relative to the asset price and where things are going to move in the future.

The wisdom of the crowds is very valuable, and we’ve not had a technology that has allowed us to have what I think of as a spam filter. You take fake polls, you take people providing information through Reddit or things like that online—there’s no spam filter. You have all these bots, you have people who lie about things in the polls to manipulate the polls, and you’ve got people who don’t want to answer the call when they get a polling call.

So I believe in these markets. I think having the check of putting dollars at risk makes a big difference, and I expect to see them thrive in the United States.

Yeah, no doubt. You’re seeing this play out in real time. You mentioned the more accurate markets on Kalshi and Crypto.com. I think the international exchange, Polymarket, as well, famously predicted all 50 states correctly in the last election.

It’s very clear that these are definitely truth-seeking machines. In my conversations with all the trading firms, all of them are ingesting this data, to your point about how important the data is to them, and the news organizations more broadly.

I think we’ll continue to see quite a bit of data here, and data work permeating all parts of the economy. So I guess maybe the hot-button topic on prediction markets is that a lot of people are calling prediction markets gambling. The supporters, like myself and many others, see these as financial markets.

You talked about that a little bit already here, but what factors do you think that regulators such as yourself and lawmakers on the Hill should consider when drawing the line and distinguishing between gambling and prediction markets, and the financial markets that we believe are being enabled?

At the turn of the century, we saw this interest in what were called bucket shops. There were these casinos and gambling houses that cropped up throughout the country, in particular in Chicago, where we had a lot of the commodities exchanges. People were able to place wagers on the price of grains—wheat, corn, and all sorts of different commodities.

Congress then, in the 1930s, created the Commodity Exchange Act. The Commodity Exchange Act established a federal regulatory framework when it comes to commodities exchanges, and these bucket shops were essentially closed down. Many of them wound down because we had futures contracts.

These contracts have integrity. They require delivery in some cases, or they cash-settle. They allow for market integrity because you have a contract with specified terms that has an underlying asset that, as I said, will either be delivered or you’ll get a cash payment on.

A lot of these bucket shops—part of the reason they called them bucket shops is because they bucket your money and disappear the next day. You see some of that sort of nefarious behavior as well in a lot of the bookie environments.

Over the years, we built up a very large federal regulatory framework around commodity exchanges. The CFTC was established in the 1970s to have oversight over our derivatives markets—commodity derivatives markets, I should say. Of course, the SEC regulates the securities derivatives markets, by and large.

These markets were given to the CFTC’s exclusive regulatory authority. That means that states cannot regulate these markets because the CFTC is the exclusive regulator. Unless the CFTC accepts something or says otherwise, we’re the regulator for these markets.

Prediction-market event contract derivatives that are offered on these markets are subject to CFTC oversight. What we’ve started to see are the casinos crop up again, trying to offer or claim that our markets are subject to their regulation, which is not the case.

We’ve had these 2 parallel regimes since, as I said, the 1930s, when the Commodity Exchange Act was established. It’s concerning to me when I started to see some of our exchanges—exchanges like Gemini, Coinbase, Crypto.com, Kalshi, and Polymarket—sued by state regulators who are effectively trying to nullify federal law.

They’re trying to ignore the fact that the Commodity Exchange Act has language in it that says if you’re offering a derivatives contract on any commodity—and the definition of commodity includes everything except motion picture box-office receipts and onions—it’s very clear. It includes all manner of events, sports, political, and otherwise. Those sorts of markets are under our exclusive remit.

That’s why we have these exchanges registered with us today. They are not subject to these state rules and regulations. When it comes to policing these markets, we have very comprehensive oversight. We surveil these markets, we examine the markets, and we have brokers that are regulated by us and the National Futures Association who trade on these markets.

It’s a very comprehensive regulatory scheme. As I mentioned, our derivatives markets globally are over $1.2 quadrillion notional. These are massive markets. The United States has about 50% of that under our oversight at the CFTC.

These are massive markets. We can’t have the states going and trying to regulate derivatives markets or set rules for derivatives markets. It doesn’t make any sense. You don’t want the state of Nevada going over to try to enforce something that’s occurring offshore in Europe or somewhere else where it has a U.S. nexus. It just doesn’t make sense.

That’s why we don’t have a patchwork of state laws and regulations around derivatives. And so this attempt by the states to nullify that and bring it back to the states...

A lot of it’s probably about tax revenue or state oversight, but we’ve got to keep that line. I’ve been very clear in the litigation. The president was clear last week as well. The CFTC’s exclusive authority over these markets is critical, and we’ll continue to fight for it.

Yeah, it’s great to see you really sticking to what you believe in here and to the law, frankly. And so we thank you for that.

Maybe pushing on one point there, we’ve talked a little bit about these event contracts and prediction markets and some roles they can play. How do you see, or how do you envision, them really integrating into broad financial markets, different risk-management tools, maybe even institutional investment strategies? What are you hearing and what are you seeing when you talk to people?

We’re seeing a wide range of new investment structures around prediction markets, around perpetuals, around novel types of derivatives. That’s very exciting. We want to make sure that we’re getting the regulation right, of course, at the CFTC. So we’re spending a lot of time working with institutional investors, exchanges, brokers, and even retail investors. We’re taking in a ton of input. We’ve put out a number of requests for comments.

On the prediction-market side, we had an advance notice of proposed rulemaking and received over 1,500 comments, and they’re from all manner of participants. That input is very important. I think on the prediction-market side in particular, we’re seeing very novel instruments around, for example, how many cars will Tesla produce in a quarter? This allows you to hedge risk like you’ve never been able to do before. These are really tailored risk-management contracts.

So if you’re an investor in Tesla and you’re concerned about a particular quarter in terms of production, or there’s a risk related to, for example, the Strait of Hormuz closure, you’re able to hedge that risk. I think that’s going to be better for investors overall, but it’s going to make the United States the premier market. I find it very hard to believe that if we cede this territory, somebody else won’t pick it up and create that market and these tools. I think these tools are going to revolutionize how people are able to manage risk and structure portfolios.

Yeah, absolutely. We’ve started to hear it from Fortune 500 CFOs and treasurers as well, as a risk-management tool. I think you can’t put the genie back in the bottle. It’s very clear that people see the opportunity set here, and I think it’s going to continue to grow. And, of course, we want it to grow here in the U.S.

Maybe a last question on the topic of prediction markets. You mentioned the advance notice of proposed rulemaking. When should we expect to hear more, if you can comment? And maybe on all of those 1,500 comments that you mentioned, what was most encouraging to you, or what was most surprising to you about those comments?

So we took in, as I mentioned, over 1,500 comments on this advance notice of proposed rulemaking, and that was a very broad set of questions and information requests to the markets and stakeholders. We received a wide range of comments. It covered virtually every issue related to prediction markets. It wasn’t a specific rule proposal. It was kind of the initiation of this whole process, and we received really helpful feedback, in particular, around: How should we define gaming? How should we think about what’s in the public interest? How should we think about these kinds of nuances in the prediction markets that you don’t have in other sorts of markets, just because of the way the products trade and the way they’re self-certified?

We’ve already made adjustments to our self-certification process, in part in response to some of the feedback we’ve received, because some of these exchanges are listing contracts that are very similar. We call them child contracts of a parent contract, where you might have a contract related to the Strait of Hormuz closure: Will it be open or closed by X date? You have multiple of these contracts that then get self-certified with different dates. We should really be able to have a parent contract and a number of subsidiary contracts and get that through the self-certification system much faster. It makes staff’s life easier when they don’t have to review these all individually.

We’re working on upgrading our systems. We announced changes to our systems last week that allow for this. So now the self-certification process, I think, is going to move much faster.

But moving into what I think people are talking about in the media more these days is the rule proposal that we’ve submitted to OIRA, which is a division within the White House that reviews different rule proposals from the various agencies. We have that moving through the process right now. We’re expecting to get that out as a proposal very shortly, and that will address one aspect of prediction markets.

It is based on some of the feedback we’ve received throughout the process, but it won’t be comprehensive in addressing every area of feedback. It’ll be narrow, but we think this is going to be a massive aid to our ability to regulate, providing a lot of clarity to the markets. I won’t spoil it now or prejudge anything, but we’re excited to see that rolled out in the very near future.

It will address, as I said, an aspect of the prediction markets, but it will address a really important part of the regulatory stream for prediction markets if we’re able to finalize it. Of course, we’ll take input during that process and make sure we get this right.

7. 24/7 Capital Markets

Well, excited to see that when it comes out. It sounds like there’ll be more rule proposals to come, and this will be an ongoing conversation. So we’re excited to continue to hear more.

Maybe let’s talk a little bit about the 24/7 trading and clearing and settlement conversation. We talked a little bit about it during the perpetuals segment earlier, and we also talked about why crypto makes the most sense here. So I won’t revisit that topic, but one of the things that stood out to me was your advisory flagged weekend and holiday margining and FCM segregation.

The FCM and DCO model today assumes daily settlement and is currently constrained by banking hours. So do you believe—and I know you alluded to this, but I really want to dig in here because I think it matters to our audience—do you believe that we need to potentially move to different clearing architecture? Or do you see tokenized assets and stablecoins playing a really large role here in the future of these markets?

Our markets have evolved over so many years. We started off trading under a buttonwood tree, and there are so many new technologies. We’ve gone from physical trading pits to electronic markets, and now we’re seeing blockchain technology. In my view, this is just a natural evolution of our markets.

We’ll see this really take off, or it won’t, or it’ll all be air. But we believe that this is something that is going to transform our markets, and there will certainly be things in the future that continue to iterate on that.

The ability to self-custody is one that’s important. We’ve never really had this ability to trade from your own account, self-custody your assets, and move assets quickly 24/7/365 over the weekend. Whether you’re trading derivatives, securities, or spot commodities, it’s really important technology.

It’s not going to be for everyone. I think some will opt to utilize a custodial model, but it will allow, to your point, the broker-dealers, the FCMs, and the intermediaries to move assets on your behalf very frictionlessly, 24/7, and engage in the programmability of their assets, which I think is really interesting as well. I do believe that this technology will fundamentally transform our financial markets for the better. But there’s going to be a lot of rulemaking and thinking as we’re going through this process.

We’ve done a number of things to facilitate on-chain financial markets. I mentioned the Phantom no-action letter, where we’ve clarified that if you’re a self-custodial wallet software provider, you can offer software that allows for the self-custody of assets and use of those assets within derivatives exchanges regulated by us.

So, if you want to plug into a Coinbase or another market where they’re offering derivatives contracts, you can plug your wallet in and trade in a regulated way. We’re also seeing, of course, the use of stablecoins and other types of digital assets as collateral. We’ve clarified as well that that works within our framework.

So, if you’re a futures commission merchant, which is essentially a broker within our markets, the futures commission merchants can accept stablecoins and other types of digital assets from customers and use those as margin to collateralize positions.

We’re seeing a ton of interest from the clearinghouses and the exchanges to also utilize blockchain technology. The clearinghouses are currently largely not utilizing stablecoins within their framework. So, as a central counterparty managing their collateral, they’re essentially taking cash from the broker. The broker takes stablecoins from the customer.

The broker then passes along cash to the clearing house, and the clearing house manages that process of exchanging margin. So we're likely to start seeing stablecoins and crypto assets flow through from the customer to the clearing house, either directly or through a broker. That's going to be very exciting. A number of participants are evaluating that and working with our staff on it.

We're also seeing interest in utilizing fully on-chain technology to execute trades. That's also very exciting. We've seen a number of these, of course, in the DeFi world, so it's not necessarily new to your audience. But to do it in a regulated way in the United States, where, over the past many years, people were walled off from that, we're going to start to see the ability to trade on-chain, execute derivatives, clear trades—all of that on-chain.

I think a lot of the major exchanges are thrilled about this. They're excited about it because it makes 24/7 much more manageable. It allows for automation, so it's going to reduce the need for certain back-office functions. It's truly global technology.

I think as our markets are becoming more interconnected, we've always had these barriers between different markets. But creating global liquidity pools where we're all enforcing similar standards around things like sanctions, trading, AML/KYC, and all of that—we need to make sure that we're, of course, protecting our customers and our investors and our national security. But we can really facilitate global liquidity through these technologies, and I think that's very exciting.

Yeah, I was earlier today at a lunch with a lot of trading firms and asset managers where this topic was the exact one that came up, and it's clear that people are excited about this. So that's great to hear.

One of the things that you do hear, though, from some of the critics or people who are against 24/7 trading is that it increases the risk of volatility and market fragmentation. Do you think that's true across all markets? Does it depend on the market? How do you approach that criticism?

As we stated in our release on 24/7, we believe that, for crypto, this makes a lot of sense because these are 24/7 markets. We've got markets in Asia, Europe, the United States—all over the world. The liquidity is largely dispersed, but it is fragmented in the sense that you have big hubs, particularly with perpetuals, right? There were these offshore exchanges that had a lot of the liquidity.

8. Final Thoughts

Much of the crypto market, in terms of actual value, is traded in perpetuals as opposed to the spot market. So it's very important to come up with a solution to get that liquidity into the United States. We don't want to be lagging behind foreign jurisdictions. But yes, there's this risk of fragmentation, and so we're considering that.

I think the ability to move things on-chain and to offer similar products to what's offered offshore allows for that liquidity to be more seamless, because you can hedge risk offshore, or people can come here to hedge their risk onshore. So market prices start to become more aligned, and we start to see liquidity largely coalescing around certain venues now that we have a market in the United States for things like perpetuals.

CME just launched its 24/7 crypto futures, so we are seeing a lot of this activity aggregate to certain venues. But I don't believe that it necessarily creates a fragmentation risk. I think the markets will beget liquidity; liquidity begets liquidity. I think people will flock to the markets that have large amounts of liquidity now that we have more ability to trade 24/7 in the US.

But for certain markets—things like agriculture, livestock, and other products—it's not clear to us that there's interest, first of all, in these products trading 24/7. We actually get the opposite feedback from most of the participants. They're concerned, and many of them would sometimes even prefer constrained trading hours.

Innovation doesn't mean 24/7 in every asset class. It might mean fewer trading hours or more trading hours. We're evaluating that. As we stated in the release, we believe that there are definitely some concerns around extending trading hours beyond what they are today for agricultural products. So we're, of course, always open to feedback and won't prejudge any issue, but likely it would not work as well for that asset class.

For things that do trade 24/7, like crypto assets on a global basis, we're interested in allowing that market to be available in the United States.

Do you think 24/7 trading becomes the norm for most asset classes?

I don't necessarily think it'll become the norm for most asset classes. I think for certain asset classes that already have a global market—things potentially like crypto—it may be the case with some of the equities and other products, where we'll continue to evaluate.

But if you think about agricultural products, as I mentioned, and energy products and other things, you've got different delivery locations. You've got, for example, WTI and Brent oil. These are different products with very distinct markets. There's not one single oil contract, and so we have to evaluate the dynamics there.

When you're thinking about a Bitcoin futures contract, although there's Bitcoin Cash and other types of digital assets that may be similar, the product Bitcoin is largely fungible across these different venues. So it's different considerations. We'll certainly evaluate it, but we're starting off with crypto and taking input. We're going to engage with stakeholders and market participants to make sure we get all of this regulation right.

The last thing we want is some financial crisis or dislocation of the markets that's caused by 24/7 trading. A lot of participants are concerned that they're using these markets to manage risk, and to then have to manage and monitor the markets 24/7 creates a lot of additional cost.

9. The Clarity Act

My position and this administration's position is: Let's lower costs, let's lower the burdens of regulation. If we're creating new burdens by opening the markets up 24/7 for people managing risk, then we're not doing our job right. So we're evaluating all of it. These are important questions and important decisions to be made, and we'll continue to engage with stakeholders to get it right.

So, 2 final questions, and we'll get you out of here. We appreciate you doing this. With the CLARITY Act—we talked about it a little bit earlier—what do you see as the most important implementation priorities, assuming that CLARITY becomes law, and what practical changes should market participants notice first following the passage of that law?

The CLARITY Act would establish a comprehensive regulatory framework for crypto markets. It would require exchanges that are now regulated at the state level. Many of these exchanges have what are called money transmitter licenses across virtually all 50 states and then have a registration with the Financial Crimes Enforcement Network, or FinCEN, with the Treasury as money services businesses.

It would condense that down into a single CFTC license, where these exchanges would come in and register with us as a digital commodities exchange. Then there are other market participants—custodians, brokers, and dealers—that would similarly register with us. So it maps our existing market structure, more or less, for securities exchanges, derivatives exchanges, and intermediaries onto the crypto world.

DeFi is still largely carved out of this, although we need to do some rulemaking on that. But generally speaking, it's for the kind of centralized exchanges that would come in and register. We do need to act quickly to develop a regulatory framework, most importantly for these new digital commodity brokers and digital commodity dealers. That is work that we're already starting to think about.

We've been very active and involved in the legislative process, providing technical assistance to all of the committees involved. We provided assistance as well to the House side when they were developing the original CLARITY Act. Now we're working with the Senate committees, as that's the bill that's really in play at the moment.

We're going to get the rules implemented. My goal is to get all of the rules done within my tenure, so we've got about 2.5 to 3 years to get this done. We're going to work really hard to get that done.

In terms of DeFi, which I think is vitally important as well, we've been doing work already. As I mentioned, the Phantom letter—we've got some other things in the pipeline to develop rulemaking around protecting software developers. I feel it's vitally important that we have the ability to develop software, to self-custody, and to engage in speech here in the United States.

If we start to infringe upon that through overly burdensome rules and regulations, then all this great creative activity and innovation is going to go offshore. If we don't have the software developers—the people who are really in the trenches creating really interesting things—because they're afraid to do that here in the US, then we're not doing our job right. So we will prioritize that to make sure that it's clear who has to register and what's subject to our registration regime.

We'll get that done early on. A lot of it we're already working on, as I mentioned, because it relates to our derivatives markets. So we'll make sure we get all this out as soon as possible.

But we're very excited to get CLARITY across the line, and for the president, this has been a priority of his since day 1. He promised to make the United States the crypto capital of the world, and we've got to cement it now that we've got it. So the United States is the leader in crypto.

But if we don't get the bill across the line, my concern is you get a Gary Gensler, Elizabeth Warren, and AOC in power, and they're going to tear it all down. So it's vitally important that we get this done.

Yes, strongly, strongly agree with you. I love what you said about developer protections. It's top of mind for us and the whole industry.

So, final question: What is the thing—or the scorecard, if you'll permit me—that you'll use to weigh yourself and the government's success in regulating these markets when you look back at the end of the term and think about all the work that you've done?

Well, our job isn't to ensure the price of any particular asset is at an all-time high or anything like that, right? What we are focused on is setting clear rules of the road, clear guidelines, so that developers, financial firms, and all manner of market participants can come to the United States, engage in commerce freely with an understanding of the rules and regulations, and know that they'll be protected from bad actors.

So we are focused on developing tailored rules and regulations for crypto assets, for prediction markets, for AI, and for all manner of new technologies that are clear and that people can understand and build within. They feel tailored to their products and services, and are not designed for other products and services. So we're working on getting that right.

We're working on right-sizing our enforcement program. The greatest tragedy over the last 4 years under the Biden administration was this assault on good-natured builders and developers. There were so many firms and individuals that were just trying to do the right thing, but there was no law to hang their hat on. There was no clarity whatsoever. They'd do one thing, the government would tell them it was wrong. They'd do something else, and the government would tell them it was wrong.

So they were just driven offshore, and many of them were sued. I can't tell you how many developers and founders told me their homes were raided by the FBI. It wasn't just 1 or 2; it was many. That's super concerning, and we want to create a safe place for innovation in the United States.

We want to be the crypto capital of the world, but also the innovation capital of the world. So we will set clear rules and regulations, and we will enforce fairly. We are not going to target, for political reasons, certain industries or individuals.

We're also going to make sure that when people come to the United States to build a new product or service, the regulator is willing and ready to work with them.

Michael Selig, thank you so much for all of this. Thank you for coming on. Thank you for your leadership. And that's our episode.