CFTC moves to codify non-custodial software protections after Phantom “no-action” precedent

CFTC Chair Mike Selig said the agency will move to convert its March no-action position for Phantom Technologies into formal rulemaking, signaling a shift from one-off staff guidance to durable cross-industry protection for non-custodial software developers.

Speaking at Consensus Miami on Tuesday, Selig framed the change as the next phase in a deliberate sequence.

As I said before, I prefer rulemaking, and so we’re going to work to codify that and get it in rules very soon.

– Mike Selig

“But as a start, it’s kind of a crawl, walk, run. We want to get some clear guidance out there to help these firms start to develop and offer their software in the U.S,” he added.

The distinction matters because no-action letters are application-specific.

Other developers seeking the same relief have to file their own requests with the CFTC’s Market Participants Division and meet conditions identical or similar to those Phantom met.

Formal rulemaking would automatically extend the protection to any non-custodial software provider that satisfies the codified conditions, and would be considerably harder for a future commission to roll back.

Eight conditions define the no-action limit

As Cryptopolitan reported on March 17, the CFTC’s Market Participants Division stated it “will not recommend that the Commission take enforcement action against Phantom for failure to register as an introducing broker,” or against certain Phantom personnel for failure to register as associated persons.

The relief is narrow. 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 or swaps, does not receive transaction-based compensation tied to trading activity, and limits its activities to providing user interfaces and software tools.

Phantom may only facilitate connections with entities appropriately registered with the Commission, including futures commission merchants, introducing brokers, and designated contract markets.

The pattern across the conditions is consistent. The closer a firm operates to a neutral software interface, the less likely it is to trigger registration.

The closer it operates to traditional broker functions, the more likely registration applies.

SEC takes a parallel position on software providers

The CFTC isn’t moving alone. SEC staff issued a parallel statement saying “a person that merely provides the infrastructure or technology to allow others to engage in securities transactions would not, solely by doing so, be acting as a broker.”

The convergence reflects the broader shift signaled by the agencies’ March 11 Memorandum of Understanding on harmonization, which named crypto among its priority workstreams.

For non-custodial wallet developers, the alignment matters.

Most operate at the intersection of derivatives, securities, and prediction markets, meaning a Phantom-style protection applied unevenly across agencies would create the same legal uncertainty the no-action letter was meant to resolve.

The crawl-walk-run sequence reads as an effort to anchor the protection on both sides of the jurisdictional line before either agency’s leadership changes.

Prediction markets fight may reach the Supreme Court

In the same Consensus speech, Selig said the CFTC’s authority over prediction markets remains under attack from state regulators.

The agency has sued 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 go up to the Supreme Court. We’ll continue to bring lawsuits whenever we see these impinge on our authority.

– Mike Selig

The two regulatory tracks Selig outlined run parallel. Codified rulemaking on non-custodial software protections is meant to give builders certainty about what they can offer.

Federal preemption litigation over prediction markets is meant to defend the CFTC’s jurisdiction against state pushback.

Both rest on the same structural argument: the CFTC, not state regulators or rival federal agencies, holds the authority to define crypto market structure rules in the United States.

The next formal step would be a Notice of Proposed Rulemaking, followed by a public comment period.

Selig hasn’t given a timeline beyond “very soon.”