The CFTC chair has outlined plans to prepare U.S. financial markets for mass tokenization, faster settlement, and round-the-clock trading. Michael Selig said regulators must update existing frameworks as blockchain and artificial intelligence reshape how traditional assets and collateral move through financial markets.
Selig delivered the remarks at the U.S. Treasury Market Conference on September 22. He highlighted real-world asset tokenization as a major development for market infrastructure. The initiative also covers stablecoins and onchain finance.
CFTC Chair Sees Tokenization Across Asset Classes
According to the CFTC chair, tokenized collateral presents a new way of dealing with liquidity. Blockchain platforms facilitate the exchange of assets among clearinghouses, intermediaries, and end-users. The network is also a platform that could be used in almost instant settlements.
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Selig compared the transition with that of floor trading to electronic trading. Tokenization holds the same potential across different asset classes. Financial institutions, however, require a suitable infrastructure for blockchain-related transactions.
The commission plans to apply principles-based regulation as adoption proceeds. This method aims at accommodating new technologies in the markets and ensuring market integrity. Selig identified artificial intelligence as an emerging part of the finance sector.
Stablecoins form one of the priorities of the agency’s activities. Earlier this year, the CFTC amended the definition of eligible tokenized collateral to cover certain payment stablecoins offered by national trust banks. The commission also issued guidance for regulated entities using crypto assets and blockchain technology.
The CFTC chair stated that the agency will consider additional applications of stablecoins. These are the uses of stablecoins by exchanges, clearinghouses, and other regulated entities.
Why 24/7 Trading Needs Different Rules
Continuous trading has become a focus as the markets are functioning in an increasing number of time zones. Nevertheless, Selig did not support the idea of one common trading calendar for all asset classes. Every market needed its own evaluation, according to him.
The CFTC chairman singled out cryptocurrency and precious metals as potential candidates for continuous trading. Other categories of products, including agricultural commodities, energy contracts, and certain financial products, have other conditions affecting the suitability of extended market hours.
The commission already sought public comment regarding continuous futures trading. There was also an advisory issued by staff regarding round-the-clock trading, clearing, and settlement. The agency is analyzing the operating conditions of the expanded market hours.
Selig highlighted the importance of having effective surveillance during the entire period of trading. Margin structure and other operating procedures had to be effective around the clock as well.
Crypto Market Rules Advance After CLARITY Act Setback
Tokenization comes as another regulatory development. On September 17, the CFTC presented its crypto market framework to the White House Office of Information and Regulatory Affairs. The filing is concerned with crypto asset transactions and markets under the existing authorities.
The submission is at the prerule stage. The draft of the regulatory text has not yet been made public. Thus, the filing has no impact on the new trading or registration rules.
This decision has been made after the Senate failed to bring forward the CLARITY Act on September 15. In the procedural vote of 49–50, the majority did not reach the required 60 votes.
In addition, the CFTC has provided conditional relief to certain passive software providers. On September 17, the relief was granted to address certain introducing-broker registration rules.
SEC Introduces Five-Year Tokenized Stock Exemption
The SEC is also moving towards implementing blockchain-based trading. On September 17, it rolled out a five-year conditional exemption for qualifying venues that facilitate tokenized stock transactions. The proposal allows trading via permissioned automated market makers and liquidity pools.
According to the SEC, tokens should afford similar rights as regular stocks. Products that only offer price exposure are excluded. The issuers also have the option of protesting against third-party tokenization of their stocks.
The venues are also restricted in terms of stock ticker eligibility and transaction sizes. The smart contracts should be visible and auditable. Trading in tokenized stocks should also be halted when there is a trading halt in the underlying stock.
In his most recent comments, the CFTC chair has included the derivatives market along with these securities regulations. The top priorities of Selig include collateral mobility, inclusion of stablecoins, and continuous trading.
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