CFTC Grants IB Registration Relief for Crypto Wallet Software Provider

The CFTC’s Market Participants Division ("MPD") granted a no-action request to a crypto wallet software provider, permitting it and certain of its personnel to offer front-end software facilitating trading in CFTC-regulated derivatives without registering as an introducing broker ("IB") or associated persons ("APs"), respectively.

The firm, which develops self-custodial crypto asset wallet software, proposed expanding its offerings to enable users to trade CFTC-regulated derivatives—such as event contracts and perpetual contracts. The firm stated it will act as a technology service vendor ("TSV") to DCMs, FCMs, and registered IBs (collectively, "Collaborators"). The firm emphasized that its role will be entirely passive; it will not hold or control user assets, generate express "buy" or "sell" signals, or exercise discretion over order routing or execution. Instead, the software will enable users to review market data and transmit orders directly to Collaborators, consistent with the traditional custodial model in which a clearinghouse or FCM holds users' funds.

In the no-action letter, MPD acknowledged that while the firm's proposed activities—which include charging transaction fees, sharing revenue with Collaborators, and soliciting users without requiring a pre-existing relationship with the Collaborator—fall outside the parameters of prior TSV interpretive letters, the firm's lack of involvement in specific order routing or execution warrants relief. Consequently, MPD stated it will not recommend enforcement action against the firm or its personnel for failing to register as an IB or APs, respectively, under Sections 4d(g) ("Introducing broker registration requirements") and 4(k) ("Registration of associates of futures commission merchants, commodity pool operators, and commodity trading advisors; required disclosure of disqualifications; exemptions for associated persons") of the CEA.

MPD conditioned the relief as follows: (i) the firm, its principals, and soliciting personnel must not be subject to "statutory disqualification" (as defined in the no-action relief), absent a waiver by MPD; (ii) the firm must provide, and users must acknowledge receipt of, disclosures regarding conflicts of interest, fees, and trading risks, subject to certain exceptions where the Collaborator is registered with the CFTC and are obligated to provide risk disclosures to users; (iii) users must be onboarded directly with Collaborators and retain the ability to access them independently of the firm’s software; (iv) the firm must comply with CFTC and National Futures Association ("NFA") communications and marketing rules as if registered as an IB, refrain from advertising or promotions requiring NFA pre-approval, and adopt and enforce policies and procedures reasonably designed to ensure compliance with applicable CFTC and NFA rules regarding communications with the public and marketing as if the firm were registered as an IB; (v) the firm and each Collaborator must agree to joint and several liability for violations of the CEA or CFTC rules arising from the proposed activities; (vi) the firm must maintain records regarding compliance with the conditions of the no-action relief and its business involving CFTC-regulated activity in a manner consistent with CFTC Rule 1.31 ("Regulatory records; retention and production"); (vii) the firm must notify MPD in the event of its insolvency or bankruptcy; and (viii) the firm must file a notice "agreeing to these conditions and consenting to the [CFTC’s] jurisdiction."