CFTC Chairman Mike Selig said the agency will move to turn its March no-action stance on Phantom Technologies into a formal rulemaking, signaling a shift from one-time employee guidance to permanent protections across the industry for developers of non-custodial software.
Speaking at the Miami Consensus Conference on Tuesday, Selig framed the change as the next stage in an intentional sequence.
As I said before, I prefer rules, so we’ll be working on writing that down and including it in the rules very soon.
– Mike Selig
“But for starters, it’s kind of crawling, walking, running,” he added. “We want to get some clear guidelines to help these companies start developing and offering their software in the United States.”
The distinction is important because no-action letters are application-specific.
Other developers seeking the same relief must submit their own applications to the CFTC’s Market Participant Division and meet conditions identical or similar to those met by Phantom.
Formal rulemaking would automatically extend protections to any non-custodial software provider that meets the codified conditions, and would be very difficult for any future commission to undo.
Eight conditions define the threshold for no action
As mentioned by Cryptopolitan On March 17, the CFTC’s Division of Market Participants stated that it “will not recommend that the Commission take enforcement action against Phantom for its failure to register as an introducing broker,” or against certain Phantom employees for failing to register as associated persons.
The vulva is tight. Phantom does not accept or handle customer funds or digital assets.
It does not act as a counterparty, does not guarantee execution, does not solicit or accept orders for futures contracts or swaps, does not receive transaction-based compensation associated with trading activity, and its activities are limited to providing user interfaces and software tools.
Phantom may only facilitate communications with entities appropriately registered with the Commission, including futures dealers, introducing brokers and designated contract markets.
The pattern across conditions is consistent. The closer a company is to a neutral API, the less likely it is to sign up.
The closer you are to the broker’s traditional functions, the more likely registration will apply.
The Securities and Exchange Commission (SEC) takes a parallel stance toward software providers
The CFTC is not acting alone. SEC staff issued a parallel statement saying that “a person who merely provides the infrastructure or technology to allow others to engage in securities transactions will not act as an intermediary merely by doing so.”
The convergence reflects the broader shift indicated by the memorandum of understanding signed between the agencies on March 11 on harmonization, which identified cryptocurrencies among priority courses of action.
For non-custodial portfolio developers, alignment is important.
Most operate at the intersection of financial derivatives, securities, and prediction markets, meaning that phantom-style protections applied unevenly across agencies would create the same legal uncertainty that a no-action letter was supposed to resolve.
The crawl-walk-run sequence reads as an attempt to solidify protection on both sides of the jurisdictional line before either agency changes leadership.
Expectations of the market battle may reach the Supreme Court
In the same consensus letter, Selig said the CFTC’s authority over prediction markets continues to be under attack by government regulators.
The agency has sued the states of Wisconsin, Illinois, Arizona, Connecticut and New York over state-level attempts to ban or restrict event contracts on gambling and gaming law grounds.
We expect these matters to reach the Supreme Court. We will continue to file lawsuits when we believe these matters exceed our authority.
– Mike Selig
The two regulatory paths identified by Selig run in parallel. Establishing codified rules around non-custodial software protection is intended to give developers certainty about what they can offer.
The federal preemption lawsuit over prediction markets aims to defend the jurisdiction of the CFTC against state opposition.
Both rely on the same structural argument: it is the CFTC, not state regulators or competing federal agencies, that has the authority to set the rules for the structure of the cryptocurrency market in the United States.
The next formal step will be a notice of proposed rulemaking, followed by a public comment period.
Selig did not provide a timeline beyond “very soon.”
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