SEC & CFTC JOINT ROUNDTABLE ON REGULATORY HARMONIZATION EFFORTS
For questions on the note below, please contact the Delta Strategy Group team.
On September 29, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) held a joint roundtable on regulatory harmonization efforts. The roundtable included remarks, dispersed throughout, from SEC Chairman Paul Atkins, CFTC Acting Chairman Caroline Pham, SEC Commissioner Mark Uyeda, SEC Commissioner Hester Peirce, and SEC Commissioner Caroline Crenshaw. The three panels were titled “Panel I: How We Got Here,” “Panel II: Platforms,” and “Panel III: Platforms.”
Below is a summary of the roundtable prepared by Delta Strategy Group, which includes several high-level takeaways from panel discussions.
Key Takeaways
- Panel I focused on the history of SEC–CFTC coordination and the limits of past harmonization efforts, beginning with the Shad-Johnson Agreement and extending through Dodd-Frank. Discussions highlighted differences in statutory mandates, with panelists referencing challenges from program trading and index arbitrage, the ban and later reintroduction of single stock futures, cliff-edge effects in index classification, and the lack of cross-margining despite congressional direction. Recommendations centered on the need for political will and accountability, explicit “shall consult” authority rather than “may coordinate” language, safe harbors to prevent cliff-edge effects, expedited approval for portfolio margin, cross-training of staff, and engagement through advisory councils and task forces to ensure efficient regulation and product development.
- Panel II focused on how differing statutory frameworks between the Commissions have created struggles between market regulators, with discussions spanning interagency coordination, product approval, innovation exemptions, 24/7 trading, and the treatment of perpetuals. It was raised how such inconsistent approaches have calcified market structure, creating legal uncertainty, lengthy approval processes, and barriers to cross-margining, while new entrants often face fewer restrictions than incumbents. Recommendations included outcome-oriented, consistent frameworks to maintain oversight while fostering innovation, streamlined and expedited approval processes, and a level playing field that avoids double standards. Innovation exemptions and exemptive authority were highlighted as critical tools to bring benefits to investors, enable tokenization and on-chain products, and allow U.S. markets to compete globally, provided they are applied fairly. On 24/7 trading, participants agreed that demand is product-specific, requiring thoughtful implementation tied to collateral movement, tokenization, and liquidity considerations.
- Panel III focused on the experience of market participants navigating duplicative, inconsistent, and contradictory frameworks between the SEC and CFTC, with panelists emphasizing how the split in unified markets has imposed costs, delays, and inefficiencies on issuers, investors, and end customers. Discussions highlighted the burden of dual registration and oversight under the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA), the time and expense of legal analysis for asset characterization, and the challenges of tokenized assets and security-based swap determinations. Panelists stressed that ambiguity is more dangerous than overhead, noting how the lack of harmonization has pushed activity offshore while Europe’s Markets in Crypto-Assets Regulation (MiCA) provides a single point of contact. Discussions cited how sequencing is critical, with Treasury clearing, repo clearing, futures, and interest rate swaps described as the four-legged stool underpinning global capital markets, requiring thoughtful implementation to avoid unintended consequences. Recommendations included harmonizing margin requirements and trade reporting fields, aligning definitions across agencies, reviving the CFTC–SEC joint advisory committee, and adopting a punch list approach to recurring themes such as 24/7 trading, blockchain definitions, cross-margining, and investor protection. On 24/7 markets, participants noted that risk does not stop on weekends, calling for the U.S. to move activity into the open with proper safeguards, sequencing, and harmonized processes to support innovation, resiliency, and global competitiveness.
REMARKS: SEC CHAIRMAN, CFTC ACTING CHAIRMAN, & SEC COMMISSIONERS
SEC Chairman Paul Atkins
For too long, the SEC and CFTC have operated in parallel lanes, too often in conflict with one another, leaving the U.S. public to bear the costs of duplication, delay, and uncertainty. That era is behind us. Our focus is on harmonization, not on a merger of the SEC and CFTC, which would be up to Congress and the President. The path forward right now is collaboration, not consolidation. Today’s torrent of financial innovation demands a unified response. Our two agencies must work in lockstep to transform dual regulation from a source of confusion into a source of strength. Full remarks available here.
CFTC Acting Chairman Caroline Pham
Improved harmonization between our agencies promises to accelerate efficiencies, foster innovation, remove jurisdictional ambiguities, and enhance market access and options for customers and investors. Many of the market structure innovations that we will discuss today have been live in CFTC markets for some time, such as 24/7 trading or extended trading hours, perpetual contracts, prediction markets, and of course, crypto assets. As regulators, we must do all we can to remove the unnecessary drag on our markets that impedes our chances of reaching our full economic potential. Full remarks available here.
SEC Commissioner Caroline Crenshaw
Harmonization sounds like a laudable objective, but should never be an end in itself. Without guidance, efforts to harmonize can all too easily lead us astray, and less obvious absurdities might creep into our regulatory regimes if harmonization becomes the goal in and of itself. Harmonization should never supplant our agencies’ respective missions and the mandates in our respective governing statutes, nor be used as a means to elide meaningful differences in the markets that our agencies regulate and their statutory missions. Full remarks available here.
SEC Commissioner Mark Uyeda
The SEC and CFTC share responsibility for markets that are increasingly interwoven and need to look past technical definitions and focus on the functional aspects of novel products themselves. Where one regulator already has a robust framework, the other should think carefully before layering its own rules on top in working toward accountability without imposing duplicate requirements. The benefits of successful regulatory engagement are clear: consistent rules, efficient compliance, and investor confidence. The consequences of failure are equally clear: duplicative oversight, higher costs, and no discernible improvement in investor protection or market integrity. Full remarks available here.
SEC Commissioner Hester Peirce
The agencies regulate interconnected, complementary markets and share a common goal of fostering a thriving, competitive financial system that supports economic growth. While cooperation has not always lived up to expectations, today’s discussions reflected renewed commitment to collaboration, good process, and shared learning. Coordination is key, whether for crypto, swaps, portfolio margining, or reporting rules. Joint processes, conditioned exemptions, routine meetings, and shared information can prevent duplicative regulation, avoid disruptions to product launches, and strengthen market oversight. The agencies must move beyond episodic cooperation to systemic coordination. Crypto and other innovations present a new era of joint responsibility, requiring clarity for issuers, intermediaries, and investors.
PANEL I: HOW WE GOT HERE
Moderators
- J. Christopher Giancarlo, Former CFTC Chairman
Panelists
- Kenneth Bentsen, Jr., SIFMA
- Craig Lewis, Vanderbilt University
- Scott Litvinoff, Interactive Brokers
- Walt Lukken, FIA
- Jim Overdahl, Delta Strategy Group
Discussion
Can you tell us a little bit about some of your experiences, specifically with the Shad-Johnson Agreement, that Acting Chairman Pham referenced?
Overdahl: Several efforts have been made over the years, with one example from the late 1980s when program trading and index arbitrage emerged from differences between the CME and the NYSE. The SEC and CFTC discussed program trading and index arbitrage, but the discussions were not productive because of different worldviews. The CFTC saw efficient price discovery and believed the markets were working as they should, while the SEC viewed the arbitrage as the tail wagging the dog, causing excessive volatility. Volatility was referred to as cholesterol, good and bad, with the CFTC seeing good volatility and the SEC seeing bad volatility, artificially induced by market structure. The SEC and CFTC never came to an agreement.
To what extent was that different view of the role of volatility in markets perhaps due to the different orientation of the two agencies, with the SEC more focused on retail and the CFTC more focused on wholesale market activity?
Overdahl: A big part of how their worldview was established comes from their governing statutes. The CFTC is focused on risk management and price discovery, whereas the SEC is focused on capital formation, fair and orderly markets, and investor protection. The fair and orderly market’s part was carrying the day in their view at that time.
Can you explain why single stock futures became something of a poster child for the failure of cooperation between the CFTC and the SEC?
Lukken: Since 2000, there have been four MOUs on harmonization between the two agencies. MOUs are not enough. The Shad-Johnson Accord was the agreement between John Shad and Philip McBride Johnson in 1981, codified into law in 1982. It allowed futures on broad-based indices to be under the exclusive jurisdiction of the CFTC and banned everything else, from narrow to single stock futures. Congress created a dual regulatory structure, very prescriptive, to get the deal done, and it lifted the ban. Two exchanges, QLX and OneChicago, put forward an effort to list single stock futures, and quickly there became only one exchange after the burdensome regulatory environment. Foreign-based indices have been successful for U.S. pension funds, but there is a cliff-edge effect when products flip from broad-based to narrow, requiring qualified institutional buyers and causing legal uncertainty. Regulators recognize overseas regulators, with mutual recognition of equivalent or comparable structures, but cannot across town recognize each other for seamless transitions.
Can you speak a little bit about your concerns with the lack of cross-margining opportunities and the hindrances to product development?
Litvinoff: The lack of ability to cross-margin customer securities positions and commodity futures positions remains, despite Section 713 of Dodd-Frank directing the two Commissions to permit it. Implementing rules never materialized, and large buy-side institutional clients continue to inquire about cross-margining of futures and futures options against securities positions. This inefficiency wastes money that could be deployed elsewhere and remains an area where the two Commissions could collaborate as Congress directed, with “shall consult,” not “may” language.
Lewis: Index products show how the two agencies not working together have hindered the development of new products. Economic analyses have given the SEC leverage to force an economically solid, quantitative solution, rather than ad hoc approaches, and showed how coordination was enabled by rigorous analysis.
Is the failure to get things over the line entirely on the agencies, or do others in the Washington ecosystem also share responsibility in some of these areas?
Bentsen: The agencies have a responsibility, but Congress also has a responsibility. Across hundreds of rulemakings, including Title VII, only a handful had mandated joint rulemaking, while many had “may coordinate” or “should consult,” which are kind of meaningless, equivalent to report language rather than rule-like text in statute. Congress needs to specify joint rulemaking when there are gray areas between the agencies, be clear about allocation of jurisdiction, and avoid “mays” as opposed to “shalls.”
How do we take a process that has only worked when Chairmen and Commissioners personally prioritized coordination and make it systematic, and not only driven by the will of the leadership? Is there a way to share decades of experience to help current Chairmen and Commissioners create a lasting process so this new day extends to tomorrow?
Lukken: What you are talking about is political will and accountability. Putting something on paper every five years, an MOU, and a desire to work together is not enough, and the energy peters out. The joint advisory committee from Dodd-Frank was valuable because it was public, held people accountable, and showed political will to staff to make courageous decisions. Starting with high-level discussions frequently, on a schedule with timetables, would be a great starting point.
Bentsen: Under Dodd-Frank Title VII, the CFTC was out of the chute quickly and promulgated rules, while the SEC was slower. The CFTC probably went too fast and the SEC too slow. Perfect should not be the enemy of good once industry has started to develop. These are often the same firms, between the FCM and the broker-dealer or the bank, and there is low-hanging fruit where the agencies can collaborate with stakeholders weighing in. Congress also has a job to do through oversight, asking where implementation stands on a law written fifteen years ago and why it is taking so long.
Overdahl: Congress certainly has a role, and past harmonization efforts faltered from a lack of authority. It has to be actual authority, not just good intentions. The Shad-Johnson Accord is an example where the two Chairmen came together, ironed out an issue, and Congress confirmed it and gave authority. Markets will innovate around barriers, so no solution is permanent, and it must be an ongoing relationship. Ideas include putting the two agencies in the same building or part of town, with staff interactions, detail assignments, or staff swaps to work with more collaboration.
In what ways can the respective staff come together, even if not in the same building or part of town, so they can work together, find harmony, and at least see how the other side sees the world, especially when they often view each other as competitors rather than peers?
Lewis: If Chairmen have mutually agreed views on how the world should work, staff will cooperate and will take direction from the top. Identifying issues of overlap and bringing the Chairmen to a hearing to explain what they are doing, why there is no progress, and the timeline, has been effective at motivating Chairmen.
Is there a role for advisory committees or task forces to help the harmonization effort? Is there a role for industry to bring to the Commissions’ attention where the lack of harmonization is interfering with good market health and good market vibrancy?
Litvinoff: The answer obviously is yes. Direct interaction is always helpful to provide visibility into industry and staff understanding.
What general advice would you give as the new day dawns?
Lukken: The Treasury market-clearing mandate coming into effect will not be economical without portfolio margining for those products, so that has to be done. Cross-training between agencies, with staff sent over to work together, would be incredibly helpful.
Litvinoff: In the growth of crypto, the absence of a sensible federal plan left participants with regulatory uncertainty at the federal level and a patchwork of state-by-state regulation. The best step is to encourage staff and commissioners of both agencies, and Congress, to carefully consider the roundtable’s thoughts and strive to work together productively.
Bentsen: Leverage the advisory councils by bringing in the industry. Back-and-forth and engagement can be beneficial, both for the industry and for the agencies, by talking to market participants about how rules are dealt with, how products are developed, and what works, and what does not work.
PANEL II: PLATFORMS
Moderators
- Jill Sommers, Former CFTC Commissioner
- Jamie Selway, SEC Division of Trading and Markets Director
Panelists
- Shayne Coplan, Polymarket
- Craig Donohue, Cboe Global Markets
- Terrence Duffy, CME Group
- Adena Friedman, Nasdaq
- Tarek Mansour, Kalshi
- Arjun Sethi, Kraken
- Jeffrey Sprecher, Intercontinental Exchange (ICE)
- Don Wilson, DRW Holdings
Discussion
How have the different statutory frameworks within the U.S. regulatory structure created struggles between the market regulators and challenges to harmonization?
Sprecher: It has been hard to work interagency in past administrations, and it is difficult within agencies to maintain consistency between market participants. Innovation around DeFi and blockchain has happened because these technologies have been able to overcome regulatory hurdles.
Friedman: It is interesting that market structure has become calcified with a distinct and structured regulatory landscape, while in other areas, there is more flexibility. NASDAQ encourages a concerted effort to develop a platform construct that is outcome-oriented, with consistent regulatory framework to create more flexibility for platforms to innovate while maintaining oversight of the securities and assets under their responsibility. There must be an even playing field as new entrants face fewer restrictions, but all should have the opportunity to innovate.
Donohue: We are seeing not just product innovation, but innovation in market structures and technology applications used by participants. These jurisdictional questions are not new, but they will accelerate given the pace of change. It is important for the agencies to act more quickly and to speak with one voice on jurisdictional questions related to product innovation. Registrants should be required to articulate both legally and economically why their product belongs under the CFTC’s or SEC’s jurisdiction. An established joint process that is expeditious and results in earlier outcomes would benefit innovation and product launches. This cannot be episodic. It must be systematic and allow participants to bring matters to both agencies. A joint adjudication process, done more quickly and without half-year reviews, could help.
Any comments on joint jurisdiction and the process?
Duffy: On joint jurisdiction, it seems like it has never worked. More clarity is needed, and for efficiencies across organizations, efficiencies are also needed within regulators. A streamlined process with clear rules of the road would make participation easier. The worst outcome is allowing a product out the gate, participants moving in a certain direction, and then facing a change from regulators that forces relocation or a shift to a different environment. That is disruptive for innovation. To innovate and move forward requires giving clarity to participants, which has been greatly missed.
What are the pros and cons of the approval process?
Mansour: Progress has been made in prediction markets and retail derivatives, with an umbrella now for these products to grow under the CFTC. The next frontier includes security-adjacent products and security futures, given market size and retail interest, as well as the rise of perpetuals. Three burdensome issues hold back innovation: legal uncertainty, which forces educated guesses and pushes innovation offshore; lengthy SEC approval, which takes 240 days while retail demands dynamic products on monthly, weekly, daily, or even hourly timelines; and the lack of direct access at the SEC, unlike the CFTC, which is important for retail. Kalshi supports self-certification as a company and stresses that rules need to evolve with the market.
Wilson: An integral, although problematic, part of the approval process, is cross-margining, which historically has taken forever or not been approved. If they want to sign up for cross-margining and be subject to the CFTC’s regime, it is not appropriate for the government to say it is not safe enough for them to do so.
Donohue: The product approval processes between the two agencies could not be more different, and the area that needs harmonization is the approval process itself. Under SEC Rule 19B4, the process is exceedingly burdensome and lengthy. The more principles-based approach at the CFTC has always been much better, but has at times been taken too far and abused. One process is overly cumbersome, impeding innovation and progress, while the other resembles the wild west, with no speed bumps or checks and balances. Innovation is happening and should continue, but products should not be designed simply to take advantage of an easier system.
Sethi: Kraken operates globally and is not even registered in the U.S. yet, but we are in Australia, Canada, U.K., Europe, and most of Asia. The U.S. is playing catch-up. Most innovation is continuing to happen outside the U.S., where innovation exemption rules have already started. Token classification, what do we do, market structure, and restrictions all require clarity. What types of assets will be classified under those tokens, and how do we think of traditional commodities? Having utmost clarity allows us to start thinking about cross-margin and about adding a security on top of a commodity, which could be a token. If we have clarity, we can innovate. It is hard to innovate if there is no clarity whatsoever.
Where can the agencies go with authorities that are already granted to them in Dodd-Frank and how could they use the exemptive authority to move forward? Any comments about the product approval part or innovation exemptions and how that would affect your platforms?
Sethi: The regulatory barriers have been monopolistic. The U.S. is playing catch-up, while most innovation is continuing to happen outside the U.S., where innovation exemption rules have already started. Token classification, market structure, restrictions, and the types of assets classified under those tokens, including traditional commodities, require utmost clarity. With clarity, we can start thinking about cross-margin and how to add security on top of a commodity, which could be a token.
Friedman: Innovation exemptions are important to remain competitive in global capital markets but should not be about supporting a business model or innovating for innovation’s sake, but about bringing benefits to investors. Exemptions should not be used as a way around rules, which exist for a reason. Moving toward 24/5 operations should be purposeful and not require hiving off underlying equities to be traded differently.
Coplan: Polymarket is built on a blockchain, and mapping that to the existing regulatory matrix is very difficult. This is where exemptive authority comes in. Despite regulatory speeches showing willingness and openness, building an on-chain DeFi product into the regulatory framework remains challenging. Acquiring QCX and owning a DCM are good first steps, but building on-chain brings benefits like transparency, composability, and interoperability. Innovators must use exemptive authority to build and implement smart contracts that provide investor protection, embodying the spirit of traditional rules while using the capabilities of technology. The regulatory agencies have exemptive authority and this is a fork in the road: wait five years while everything happens offshore and consumers are left with an older generation not attuned to current investor demand, or act now.
Duffy: The concern is that when innovation becomes an exemption, products that core institutions have traded for years under a different name become exempt, while core institutions are not allowed to do the same on the same timeline. There cannot be a double standard in derivatives or securities. There must be a single standard and a level playing field. Incumbent players should not be excluded differently.
Donohue: We are trapped in the old paradigm and cannot compete in what is now the majority of trading activity in the world’s largest cash equity securities market. If it is going to be done, it has to be for everybody, not just for new entrants. Success depends not just on the quality of innovation but on the quality of regulation.
Wilson: Innovation exemptions are important to move faster and give the U.S. the ability to catch up with what is happening offshore, but it must be done thoughtfully. Equity tokenization is not one size fits all. The key is ensuring that innovation exemptions do not result in a fragmented market.
Mansour: Our approach is more traditional. I do not feel very strongly about need for exemption versus not. What I do feel strongly about is a set of rules and laws that are set and that everybody has access to in a fair and equitable way. We want a level playing field.
What are the challenges regarding 24/7 trading? Are there markets where it is not a good idea?
Sethi: We operate 24/7 and have proven it can be done successfully in terms of volume per day. We have taken a regulatory approach, and we have built a lot of automated tools to do that.
Duffy: It is product-specific. In agricultural communities under CFTC jurisdiction, many producers would not want markets on a Saturday afternoon with high-frequency traders or others trading without a cash market or the ability to participate. There are also costs for firms to staff up 24/7, a significant expense with little business initially. 24/7 is coming, the market will demand it, but it should be reached in a thoughtful way.
Wilson: It is product-specific, and there is strong demand for retail products to trade 24/7. We will get there, but moving 24/7 requires collateral to move 24/7 as well. The right kind of tokenization is critical, such as tokenization that does not introduce additional counterparty risk. This can open the possibility of all kinds of collateral for many products, including tokenized treasuries for Treasury futures, or tokenized collateral for single stock futures and single stock perpetual futures.
Sprecher: Markets should decide which products go 24/7, not regulators.
Friedman: We are focused on bringing exchange operations into a 24/5 market. Stocks are not commodities, and corporate actions must be considered in a 24/5 environment. Issuers care how their stock is traded, U.S. market hours are the market hours, and not all stocks are liquid enough for 24/7 trading. It should be up to the market to decide which can.
Coplan: 24/7 trading will enable American companies to adopt new technology. This is not a level playing field amongst competitors, but amongst the technologies.
Does anyone want to speak to different issues surrounding the listing of perpetuals?
Wilson: Perpetual futures should be eligible for listing in the U.S. The view that perpetual futures are swaps is ridiculous.
Donohue: Thanks to the CFTC’s thoughtful approach, Cboe is launching perpetual futures on Bitcoin and Ethereum. Those are products that typically would have been traded offshore, a good example of how our regulators can help support innovation in a constructive way.
Duffy: A futures contract, by law, is a contract to be settled on a date. A perpetual contract, by name, is a contract that never ends. We need clarity. If you are going to have perpetuals, you need to change the definition of a futures contract because it does not fit by law.
PANEL III: PARTICIPANTS
Moderators
- J. Christopher Giancarlo, Former CFTC Chairman
- Troy Paredes, Former SEC Commissioner
Panelists
- Stephen Berger, Citadel
- Ryan Louvar, WisdomTree
- Nick Lundgren, Crypto.com
- JB Mackenzie, Robinhood Markets
- Dave Olsen, Jump Trading Group
- Sonali Theisen, Bank of America
- Brad Tulley, J.P. Morgan
Discussion
How do market participants participate in regulated markets and navigate differences between the rulemaking of the CFTC and the SEC? What are some of the issues that the lack of coordination, or the regulatory structure inherited by Congress and the agencies, imposes on the markets and participants?
Berger: As markets have grown, integrated, and diversified, duplicative, inconsistent, or contradictory frameworks have hindered growth, innovation, and competitiveness, acting as a de facto tax on issuers and investors. There is an illogical split in otherwise unified markets, and inefficiency extends to the SRO level, with duplication and inconsistencies under both FINRA and NFA oversight. Opportunities should be expanded, but must be durable and resilient.
Louvar: Navigating the two different regulatory regimes to land in the right regulated product structure has been, and continues to be, a challenge. Assets still require analysis to determine the correct bucket. Under the prior regime, the SEC viewed nearly every asset in this category as a security, which added difficulty even as clarity began to improve. Tokenized assets add further complexity, particularly when tokenizing real-world assets such as funds or commodities.
Does there need to be a separate conversation about greater harmonization between NFA and FINRA, and how does a comprehensively regulated firm face challenges under the different self-regulatory structures of the two?
Berger: Having to deal with both FINRA and NFA on registration, recordkeeping, and exams also manifests for dually registered BDFCMs. With additional products and asset classes potentially moving under SRO jurisdiction, we should be cognizant of that lack of harmonization and coordination as well.
Lundgren: FINRA and the NFA can work more closely together.
What are the practical consequences of having to undertake legal analysis, and how does this manifest in terms of products that have not come to market but could have, if the circumstances were different?
Louvar: Staying on the right side of asset characterization requires time, energy, and legal counsel. This is time-consuming, costly, and ultimately delays product launches to ensure proper characterization.
Lundgren: Exemptions must be designed to allow innovation that is safe, controlled, and for the benefit of the customer. Otherwise, Europe and Asia will move ahead.
Is there any particular experience where the lack of harmonization created specific frictions, delays, or time costs that stand out?
Lundgren: In the prior administration, an issue arose when listing derivative contracts on a DCM of how to get crypto derivatives listed if the CFTC did not have certainty from the SEC that they were not security-based swaps, requiring more legal analysis. That has since been cured. In Europe and MiCA MiCA-licensed firms allow a full slate of services with one regulator as a single point of contact. By contrast, in the U.S., it is best to have the SEC and CFTC remain independent, as having the two work together while regulating different products allows innovation within those bespoke aspects.
Mackenzie: Regulation and oversight have been based on the product itself, pigeonholing products into various jurisdictional oversights, even at the state level. What is often forgotten is the end customer, who expects to access markets easily. As harmonization is considered, the impact on the end customer is critical, especially as technology moves quickly. The focus should be on improving the end experience.
To what extent has a lack of clarity between the two agencies and their regulatory structures hampered the ability to trade in markets?
Olsen: Ambiguity is more dangerous than overhead, with the poster child example being the SEC–CFTC debate about Ethereum. As the market matured, the decision was made to relocate the majority of global firm activity outside the U.S., where rules were not ambiguous, allowing the market to grow in compliance with the spirit and letter of local jurisdictions.
How do both Commissions step up to this new set of innovations, like tokenization, 24/7 trading, and on-chain trading, and respond in a harmonized way, given that one agency was born out of a crisis of investor harm and the other was reborn out of an opportunity to create novel financial instruments?
Theisen: Sequencing is key, especially with Treasury clearing, repo clearing, futures, and interest rate swaps as a four-legged stool underpinning global capital markets, and regulators must allow ample time for thoughtful implementation. Other areas of lower hanging fruit include cross-border issues, where SEC treatment of A&E transactions between non-U.S. persons as subject to SBS regulation has had unintended consequences, limiting U.S. participation in important discussions.
How might sequencing be an element of harmonization when viewed from a practical perspective?
Theisen: Innovation and markets are moving quickly, like a car that can go 200 miles an hour, and the roads must be able to handle it with on-ramps, off-ramps, and consideration of trucks and buses. The entire infrastructure and apparatus must be considered, from risk management, leverage, FCMs, to clearing houses. Protections must be in place to prevent unintended consequences, margin spirals, or sell-offs in thin liquidity. 24/7 trading would affect all market participants, and sequencing the rollout is essential, aligning it with the rest of the apparatus. Blockchain may play an important role in collateral movement, settlement, and collateral mobility, with experimentation and use cases showing promise. The key is to consider leverage, infrastructure, and sequence the rollout of such innovations in a way that makes sense.
What is the effect of the need for harmonization, and how has the lack of coordination in the past affected the ability to innovate?
Tully: Harmonization of margin requirements across the SEC and CFTC regimes would allow streamlined, efficient processes, reducing regulatory burden without creating additional risk. On trade reporting, the proliferation of data field requirements has increased complexity and compliance costs. The SEC and CFTC could review what information is truly necessary, rationalize reportable fields, and harmonize a more limited set of core fields across swaps and security-based swaps. These fields should also align with international standards such as the CPMI-IOSCO critical elements list to drive consistency across jurisdictions. Lack of harmonization has also created impediments for certain investors.
Given the complexity of collecting mismatched data fields across the CFTC, SEC, and overseas regulators, do you see an opportunity for blockchain-based solutions to streamline post-trade reporting? Is that something any of your institutions are currently exploring?
Olsen: In DeFi trading and smart contract construction, an off-chain conduit is needed for data to reach the smart contract, which cannot determine real-world events. Oracles, often competitors contributing data from their own sources, can be aggregated into data channels. Real-time data from oracles is already used to feed trading models, making this an area wide open for further development.
Any thoughts on 24/7?
Olsen: Risk does not stop on weekends, and markets are already filling that vacuum through platforms like Hyperliquid and other DeFi venues, with 24/7 trading ongoing for over a decade and listed futures now trading 24/7. The urgency is to bring this activity into the open in the U.S. with a framework to support it. For settlement, stablecoins are often seen as the primary solution when Fedwire is closed, but there is an asymmetry if treasuries are haircut while stablecoins are treated as cash at par. Actual U.S. dollar transfers outside Fed hours already exist and are used in 24/7 markets if participants share the same financial institution, with subledger movement available as a 24-hour capability.
Lundgren: Certain industries may not be suitable, but contracts that are cash settled should definitely have 24/7 markets. Crypto markets function this way, FX markets function this way, and having this available in the U.S. is a no-brainer.
Mackenzie: We have been participating in 24/7 markets on the crypto side for years, and now also with prediction markets. The task is to enhance legacy technology, add oversight and reporting, and put it out there, because it is already happening but being pushed overseas.
Theisen: Support for innovation goes back to sequencing and investor protection, ensuring the right safeguards. Markets that are 24/7 or 24/5 may have different characteristics. Futures and crypto are more macro, with very different leverage, either outside traditional financing or in a clearing house. The rest of the ecosystem is needed before moving the market in mass.
Louvar: It is not only about 24/7, but also about when settlement occurs. The focus on blockchain is about bringing immediate settlement to different assets by being able to trade 24/7 and then immediately settle, a relatively low-cost way that could bring real benefits.
Tulley: It is important that the ecosystem is set up to support extended trading, whether through clearing and settlements, central bank facilities for managing risk, or the cash and derivative interplay, with harmonization in place for all of it.
On harmonization and the different forms, it could take, whether substantive rulebook harmonization, process coordination, relationship-building across agencies, or the use of technologies like AI, what are some practical, concrete steps?
Tulley: More forums and discussions on areas for harmonization, such as trade reporting, cross-margining, and 24/7 markets. Support exists for reviving the prior CFTC-SEC joint advisory committee formed in 2010, which only held a handful of meetings before being done away with. As with the CFTC’s Global Markets Advisory Committee, bringing market participants together to make recommendations that reach the agencies can support market resiliency and liquidity, and can lead to actionable recommendations.
Theisen: A punch list approach is recommended, with recurring themes such as 24/7 trading, blockchain definitions to enable industry scaling, and greater clarity on investor protection and recordkeeping. Blockchain has promise, but to move from R&D to market implementation requires clarity and definitions.
Regarding that assertion that self-certification at the CFTC is too easy and too fast, and at the SEC it is too hard and too long, should that be on the punch list for reform, and should there be harmonization between those two processes?
Theisen: At minimum, there should be discussion, collaboration, and understanding of why differences exist. A common theme is that moving too fast causes issues, while moving too slow pushes activity offshore. The right balance is needed.
Olsen: There is low-hanging fruit in definitions that regulate substantially the same behavior but differ between agencies. One approach would be to line up the commonalities of definitions, pick one, or find a better third option, and make them the same.
Should the goal be to avoid forcing the market to choose between the CFTC and SEC, and should government sometimes yield to what is in the market’s best interest rather than each agency asserting its own perspective?
Olsen: The giant needle mover is whether the mandates of either Commission would allow for true substitute compliance so that, for example, a swap dealer and a broker-dealer would not require different registrations. The idea of a super entity, or a super app, out of which multiple functions could be done addresses the problem that much time is spent not on trading, system design, or research, but on deciding which legal entity to use to express risk and which banks and prime brokers to meet with to stitch the U.S. regulatory structure into a single risk offset.
Mackenzie: There are many areas to improve experiences for end clients and compliance groups, whether product by product, operational, or AML/KYC, each with different nuances and downstream impacts. Protocols, oversight, and reporting should make sense for combined entities, such as broker-dealer, FCM, and swap dealer. The goal is to get to that same spot within a sensible time frame, because internationally, others are moving forward.
Is harmonization also needed with overseas regulators, and is international regulatory coordination truly a possibility?
Mackenzie: 100 percent. Regulators ask how things are handled with the SEC, the CFTC, and under different rules, wanting it to be easy and simple to understand risk. The U.S. should lead as it does in markets, and also from a regulatory standpoint by going overseas and bringing good practices back.
Lundgren: It may not be a possibility, but it is a good ideal, and global standards are critical.