Registered brokerage and trading firms can often view their regulators inappropriately.  Within the derivatives industry, interactions with the Commodity Futures Trading Commission (“CFTC”), National Futures Association (“NFA”), or various exchanges can at times become one dimensional or seemingly adversarial.  It can become easy for those in the industry to forget the dual mandate that regulatory organizations should be implementing.  First, and most obviously, regulatory organizations exist to promote the integrity, resilience, and vibrancy of the US Derivatives markets.  To accomplish this, these organizations should be implementing sound, common sense, rules and regulation. Second, and perhaps not as obvious, is that these organizations also exist to educate, support, and further expand the pool of market participants. This is particularly true of NFA and the exchanges who both financially benefit from increased market participation.

For those who are unaware the CFTC, NFA, and various exchanges all have consumer education initiatives. You can learn more about these initiatives by following the links below:

As of the date of this article the derivatives industry is going through a transformational period. Various technologies and product innovations are pushing regulators outside of their respective regulatory comfort zones. Crypto and other digital currency initiatives in particular are forcing regulators to rethink longstanding industry approaches. Turnkey wrote about one such instance in our article “NFA Against FTX Crypto Proposal”.  Although the derivatives markets are evolving, one thing remains constant: registration and appropriate regulation matters for the development of financial markets. It is therefore our position that CFTC registered, NFA member firms dealing in spot crypto or digital currency consider registering.

For those who work with Turnkey and consider our industry publications, it should be no surprise that we believe regulators will leverage existing foreign currency (“Forex”) regulations and concepts, while developing Crypto and Digital Asset regulation. It is therefore our view that to best predict what the CFTC, NFA, and exchanges might do next in this market segment, one should pull from existing regulatory literature. As forex regulation was being developed the CFTC published a variety of consumer notices about the space. It is Turnkey’s view that these notices could be a foreshadowing of what’s to come for digital currency and crypto regulation under their authority.

Regulator’s published literature about the benefits of working with regulated Forex brokers. Within this literature Turnkey identified at least eight primary reasons regulators urged consumers not to work with unregistered, and thus unregulated derivatives firms. Ask yourself, do these reasons sound familiar when compared to the current Crypto currency regulatory debate?

8 Reasons To Work With A Regulated Firm

  • Background checks are required for registrants and principals to enter the marketplace
  • A verifiable address and contact information are required to operate
  • Registrants are subject to routine examination by regulators
  • Registered representatives must meet minimum proficiency standards
  • Minimum financial accounting, margining, and reporting standards
  • Fees and conflicts of interest must be properly disclosed
  • Protections over assets on deposit may be available
  • A venue for addressing grievances and pursuing disciplinary action within the industry exists

Registration is a necessary process in developing the legitimacy of nascent financial markets. Firms operating within the digital currency markets would be well suited to begin embracing this reality.  While the decision to get regulated can be nuanced, firms like Turnkey exist to help with the process.  Turnkey has specialized in helping register firms with NFA for over 15 years.  Turnkey was here when Forex regulations were put in place from 2008 through 2010. We were here when Dodd Frank required swap firms to register.  We are available today and will be into the future as Crypto brokerage and trading comes under more regulatory scrutiny and joins the long list of product types under CFTC authority.