CFTC Proposes Strict New Rules for Vertically Integrated Markets
The CFTC has proposed new regulations to manage conflicts of interest in vertically integrated derivatives markets, including a general ban on affiliates trading on their own exchanges and new third-party oversight requirements.
The US Commodity Futures Trading Commission has proposed extensive new rules targeting conflicts of interest in vertically integrated derivatives markets. The proposal reflects a significant shift toward more prescriptive safeguards, addressing concerns that exchanges or clearinghouses might favor affiliated trading firms or misuse non-public information. Key provisions include a general prohibition on a principal trading firm trading on an affiliated designated contract market (DCM), with a narrow exception for market makers who would be subject to strict conditions like order-priority subordination and independent third-party oversight. The rules would also mandate enhanced operational separation, information barriers, and new conflict-of-interest procedures for DCMs, swap execution facilities, and clearinghouses with affiliated intermediaries. Futures commission merchants would face new obligations to disclose affiliate relationships to customers. These changes, if adopted, will require significant compliance overhauls across the industry and may particularly affect digital asset platforms. Market participants should review the proposed requirements and consider submitting comments before the deadline.