The Commodity Futures Trading Commission issued new guidance on September 17 that could widen online access to cryptocurrency and prediction-market trading by exempting certain software providers from broker-registration requirements. The agency said passive software providers partnering with regulated entities will not face enforcement penalties for failing to register as brokers, provided they never take custody of a user’s assets.
That single condition – no custody, ever – is the hinge the whole guidance turns on. It separates companies that simply route orders to regulated partners from those that handle money directly, and it’s the distinction the CFTC is now using to decide who needs a broker license and who doesn’t.
Who This Actually Affects
Under the prior framework, any company that solicited or accepted trade orders, sent them along to futures commission merchants, and collected fees or commissions for doing so was required to register as a broker. That requirement covered a wide swath of the crypto-adjacent software layer – wallets, apps, and interfaces that never touched customer funds but still moved orders around.
The new guidance carves those companies out, so long as they stick to a passive role and partner with an already-regulated entity. It affects software providers, the regulated trading partners they plug into, crypto-wallet users, and prediction-market participants who access markets through third-party apps rather than going directly to a designated contract market. Per the guidance, the exemption stays in place until the CFTC finalizes a rulemaking or issues different guidance – meaning it’s a working policy, not a permanent rule.
The timing isn’t incidental. The guidance landed two days after a bipartisan group of senators moved to block crypto-market legislation the industry had been pushing for. CFTC Chairman Michael Selig and Securities and Exchange Commission Chairman Paul Atkins have both said they intend to implement digital-asset rules without waiting on Congress, and this guidance reads as an early example of that approach in practice.
How the Passive-Software Exemption Works
The mechanics are narrower than the headline suggests. A software provider qualifies for the exemption only if it partners with a regulated entity and never takes custody of user assets – the CFTC didn’t extend the carve-out to platforms that hold funds, make trading recommendations, or operate independently of a registered intermediary.
This isn’t the CFTC’s first move in this direction. In March, the agency granted a no-action letter to Phantom Technologies Inc., waiving the broker-registration requirement for its wallet software. Phantom has partnered with Kalshi to offer prediction-market trading to more than 20 million crypto-wallet holders, making it the clearest existing example of the model the new guidance now generalizes.
Phantom CEO Brandon Millman said the company had built the foundation for platforms that neither custody user assets nor make trading decisions on their behalf, framing the approach as software built to protect consumers while pairing users with regulated partners to give them safer access to the financial services they’re looking for. That framing – protection through structure rather than through direct oversight – is essentially what the CFTC just wrote into broader guidance.
Other Platforms Already Running the Model
Phantom isn’t alone. Crypto.com and ProphetX have both adopted comparable business models and operate CFTC-registered platforms, meaning the guidance validates an approach that was already gaining traction rather than inventing a new one from scratch.
Aaron Brogan, founder of Brogan Law, which specializes in emerging companies and regulated businesses, said the guidance could allow prediction markets to be placed nearly anywhere. He added that any product capable of trading on a designated contract market could potentially be covered by the new position – a scope reading that, if it holds, extends well beyond wallet apps to any software layer sitting between a user and a regulated exchange.
That’s a meaningfully broader claim than the guidance’s plain text guarantees, and it’s worth treating as an attorney’s interpretation rather than settled CFTC policy. But it captures why the industry is paying attention: the exemption’s language about “passive software” doesn’t name specific product categories, leaving room for a lot of different applications to try fitting themselves into the carve-out.
What the Guidance Doesn’t Settle
The CFTC framed this explicitly as a temporary position – it remains in effect only until the agency completes a formal rulemaking or issues other guidance that supersedes it. That’s a meaningful caveat for any company building a business around the exemption, since the ground rules could shift once a rulemaking process actually gets underway.
The primary source doesn’t specify a timeline for that rulemaking, and no date has been set publicly as of this guidance’s release. Companies relying on the no-action position are, for now, operating under a policy the agency could revise or replace without much notice.
Why the Access Question Matters
The practical effect, if the guidance holds, is more entry points for prediction-market and crypto trading without each new entry point requiring its own broker registration. Phantom’s Kalshi partnership already gives more than 20 million wallet holders a path into CFTC-regulated trading through an interface most of them were already using for something else – moving crypto, not placing trades.
Crypto.com and ProphetX operating comparable setups on registered platforms suggests this isn’t a one-company exception but a pattern the CFTC is now willing to formalize across the sector. Whether that translates into a meaningfully larger user base for event contracts and crypto products depends on how many additional software providers structure themselves to qualify – and how aggressively regulated intermediaries want to expand their own distribution networks through third-party apps.
What’s clear from the guidance itself is narrower: the CFTC has drawn a line at custody, not at market access generally, and it’s betting that line is enough to protect consumers while letting more software companies plug into regulated trading without becoming brokers themselves.
What Comes Next
The guidance stays in force until the CFTC either finalizes a rulemaking or issues new guidance that replaces it – the agency hasn’t specified when that might happen. Until then, passive software providers partnering with regulated entities have a clear, if provisional, path to expand without registering as brokers, and companies like Phantom, Crypto.com, and ProphetX have a template already running.
Further coverage of this guidance, including the underlying staff letter reported by Bloomberg Law, points to more detail on how the no-custody condition will be enforced in practice. What isn’t in question is that the CFTC moved first – and did so without waiting for Congress to act.
The post CFTC Draws a No-Custody Line for Trading Software appeared first on ReadWrite.
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