The Desk: October Edition Newsletters

Welcome to the October edition of The Desk, where the only thing scarier than a zombie trade that never novated is the ticking sound of the impending Treasury clearing compliance date. We have something for everyone in this edition: Treasury clearing, enforcement, digital asset updates, relief for passive software providers, and prediction markets.

You can also listen to us discuss these matters on our podcast on Apple Podcasts and Spotify

Treasury Clearing: September Brings Guidance, Not Relief

As we approach the December 31 compliance date for central clearing of outright cash Treasury trades, we wanted to switch up the format a little. Through the end of the year we will lead in with helpful information and updates on the impending Treasury clearing compliance deadline. 

As such, the SEC's Treasury Clearing Rule produced two developments this month. Neither was a Commission order, and neither moves the dates. Cash clearing starts December 31, 2026, and repo clearing starts June 30, 2027.

Staff FAQs (Sept. 2). Trading and Markets updated its interpretive FAQs to answer two questions:

• What happens when a trade fails to novate at the covered clearing agency?
• How to determine whether a counterparty is a government securities broker or dealer. This matters because dealer status can decide whether a transaction is an "eligible secondary market transaction?"

Firms building their in-scope logic should reflect the dealer-identification guidance in their counterparty classification before year-end.

Uyeda at the Treasury Market Conference (Sept. 22). Commissioner Uyeda, who leads the SEC's implementation work, made three points. He spoke in his individual capacity.

1. No extension. He said the SEC does not currently intend to push the compliance dates back again.
2. Cross-border and inter-affiliate repo are still open. Two exemptive requests remain pending:
   • IIB's request covers trades executed entirely outside the U.S. between non-U.S. parties.
   • SIFMA's request would broaden the inter-affiliate exception and add an activity-based threshold for non-U.S. affiliate trades.

The Commission reopened comment on both in August. Uyeda floated a single exception with a firm-specific cap on non-cleared, non-U.S. repo, sized as a share of each firm’s Treasury volume. He was skeptical of the market-wide cap commenters proposed. He asked firms that would use it to say how much volume they would put through it and how the cap should be calculated and recalibrated.

3. Rule 15c3-3a relief is still pending. SIFMA’s request to allow reserve-formula debits for FICC margin posted on a net/omnibus basis is still under consideration.

Our take. Any cross-border relief is likely to be a volume cap, not a carve-out.

Also this month: ISDA published its July Treasury repo clearing indicators (Sept. 15) and a paper on the transition to mandatory clearing (Sept. 23). The DTCC/SIFMA pulse survey (Sept. 22) found more than half of respondents now have funded repo-clearing projects, up from 38% in 2025.

Barrett Morris | Email

Enforcement Round-Up

CFTC Targets Alleged $950 Million Cash FX Ponzi Scheme

What Happened. On September 25, the CFTC filed a complaint in the U.S. District Court for the Middle District of Florida against Cash FX Group, its CEO, and three related defendants, alleging a multilevel-marketing Ponzi scheme that raised more than $950 million for purported retail forex trading. The complaint alleges minimal actual trading, widespread misappropriation, fictitious account statements, and at least $406 million in participant losses and that the defendants falsely claimed pool funds were traded by expert traders, proprietary algorithms, and artificial intelligence. The CFTC seeks restitution, disgorgement, penalties, permanent injunctions, and trading and registration bans.

Why It Matters. The action reinforces the CFTC’s focus on large retail frauds and on promoters that use false or misleading claims about artificial intelligence, algorithms, or proprietary technology to lend credibility to investment programs.

Practical Takeaways.

• Claims about technology, trading strategy, performance, and expected returns may warrant substantiation before they reach customers.
• Referral and multilevel compensation structures may create incentives that can magnify sales-practice risk.
• Controls can be assessed for whether they appropriately reconcile customer statements, trading activity, custody, and fund flows.

Court Imposes More Than $6 Million in Options-Fraud Remedies

What Happened. On September 15, the CFTC announced that the U.S. District Court for the District of Connecticut entered a default judgment against Michael Frederick Staryk, individually and doing business under several trade names. The court ordered approximately $548,000 in restitution and $5.9 million in civil penalties, plus permanent trading and registration bans, after finding that promised commodity-options trading did not occur and at least 26 retail client’s funds were misappropriated. Separately, the court entered a consent order against relief defendants Yvonne Stephanie Solerti-Coto and Global Financial Institution LLC, who were ordered to disgorge approximately $111,000.

Why It Matters. The resolution shows that a matter involving a limited customer group can still produce substantial penalties, permanent bars, and recovery from persons or entities that received proceeds without a legitimate claim.

Practical Takeaways.

• Customer solicitations may be compared against actual trading, custody, and performance records.
• Fund-flow surveillance may help identify transfers inconsistent with stated investment activity.
• Affiliates and other recipients of customer funds may face recovery and litigation risk, not only primary actors.

CFTC Pairs Over $150 Million in Whistleblower Awards with New Award Presumption

What Happened. On September 11, the CFTC adopted a final rule (modeled on the SEC’s rule 21F-6(c)) creating a rebuttable presumption of a 30% award for qualifying whistleblower awards of $5 million or less, subject to Commission discretion and the applicable regulatory factors. On September 14, the agency announced ten whistleblowers awards totaling more than $150 million, based on final determinations issued from July through September.

Why It Matters. The paired announcements highlight the Commission’s effort to make awards faster and more predictable while further enhancing the ongoing efforts at harmonization between the SEC and CFTC.

Practical Takeaways.

• Internal reporting channels should be evaluated for accessibility and prompt escalation capability.
• Documentation of investigation, remediation, and anti-retaliation practices are important steps for addressing employee complaints.

CFTC Resolves Claims Against Commodity-Pool Solicitors

What Happened. On September 9, the CFTC announced that the U.S. District Court for the Southern District of Florida entered consent orders against Steven Likos (a sales agent of defendant Algo Capital LLC) and Archie Rice (who solicited customers and prospective customers for defendant Centurion Capital Group Inc.) arising from retail commodity-pool solicitations. The orders found misrepresentations concerning performance, withdrawals, and trading strategies; misappropriation; and ignored red flags involving an underlying trading operation. Likos was ordered to pay approximately $320,000 in disgorgement, Rice was ordered to pay approximately $227,000 in penalties, and both received permanent trading and registration bans.

Why It Matters. The orders underscore that sales agents and associated persons may face individual exposure when they misstate material facts or continue soliciting customers despite warning signs.

Practical Takeaways.

• Performance, liquidity, withdrawal, and strategy statements can present significant risk if they are not aligned with available support.
• Delayed withdrawals and inconsistent third-party explanations may warrant escalation as potential fraud indicators.

Tiffany Payne and Nader Raja | Email

Digital Assets

Plan B? CFTC FAQs Push Tokenization Forward After Clarity Stalls

On September 24, nine days after the Senate failed to advance the CLARITY Act, three CFTC divisions (MPD, DMO and DCR) added four new answers and updated a fifth in their crypto FAQs. The FAQs were first published in March to explain Staff Letters 25-39 (tokenized collateral) and 26-05 (crypto as margin collateral). The new material:

• Tokenized customer-fund investments (Q12). FCMs and DCOs may invest customer funds in tokenized forms of investments already permitted under Reg. 1.25, if four conditions are met:
  1. the underlying asset is permitted under Reg. 1.25(a);
  2. the token carries legal and economic rights that are the same as, or functionally equivalent to, the traditional form;
  3. the investment satisfies every Reg. 1.25 condition, including liquidity, concentration limits, time-to-maturity and restrictions on instrument features;
  4. the token is held at a Reg. 1.20(b) depository, or, for government money market funds, a Reg. 1.26(b) custodian that provides a written acknowledgment letter.

Note the asymmetry with Q4, which is unchanged: an FCM still may not invest customer funds in payment stablecoins. A tokenized Treasury money fund is in; the Treasury-backed stablecoin is out.

• Tokenized MMF shares as swap margin (Q5, updated). Swap dealers may post and accept tokenized money market fund shares as initial or variation margin under Reg. 23.156(a)(1)(ix), subject to the same functional-equivalence test. The practical boost comes from the July 17 amendments, effective August 17, which removed the asset-transfer restriction that had kept most money funds off the eligible list. (Regular readers will remember those amendments from our August Part 23 coverage.) Crypto assets, including payment stablecoins, are still not eligible collateral for uncleared swaps.
• Blockchain recordkeeping (Q13 & Q14). Regs. 1.31 and 45.2 are technology-neutral, a principle that dates to the 2017 amendments to Reg. 1.31 (82 FR 24479). Records entities may therefore keep regulatory records on-chain if they fully meet the authenticity and reliability requirements. The same view extends to any rule that incorporates Reg. 1.31 or 45.2 by reference, such as Regs. 23.203, 39.20 and 37.1001. Staff expects firms to check the effect on their Reg. 1.11 risk management programs and their reporting under Parts 43, 45 and 46.
• No mandatory off-chain copy (Q15). Staff will not object solely because a firm keeps no off-chain copy of its records. But a firm using a public, permissionless chain must be able to produce records even if the network or its block explorer goes down. In practice, that is an off-chain backup requirement in all but name.

The CLARITY connection. The Senate's September 15 cloture vote on the motion to proceed failed 49 to 50, and Sen. Tillis entered a motion to reconsider, so the bill is stalled rather than formally dead. Reporting indicates the fight was over ethics language on officials’ crypto holdings, not the SEC/CFTC market-structure split. Selig had said in August that he would direct staff to find ways to codify digital asset market structure, and the FAQs themselves say the recordkeeping answers respond to the June 16 request for information under Executive Order 14405 (citing comments from dYdX Labs, the Blockchain Association and the Solana Policy Institute). But note what the FAQs can and cannot do. CLARITY's core provisions would have given the CFTC jurisdiction over spot digital commodity markets and created a registration regime for digital commodity exchanges, brokers and dealers. No FAQ can supply that. The Divisions can only work inside the existing registrant perimeter: FCMs, DCOs, swap dealers and registered venues. So, the regulated side keeps absorbing tokenization while the spot market CLARITY aimed at stays outside the CFTC's reach.

There is also a durability problem. Footnote 2 says the FAQs are staff views only and provide no no-action position, a weaker footing than even a no-action letter. This Chairman showed in February, when he withdrew the 2024 NPRM and Letter 25-36, how quickly staff positions can be unwound. The FAQs also cite harmonization with the SEC’s FAQs (updated in September) and the March 11 CFTC-SEC MOU, and a new administration could reverse that alignment just as easily.

Barrett Morris | Email

Phantom Menace No More.

On September 17, the Market Participants Division issued Letter 26-25. It extends the Introducing Broker and Associated Person no-action relief it gave Phantom in March (Letter 26-09) to all "Passive Software Providers" (PSPs). Other firms couldn't rely on Phantom's letter, since Rule 140.99(a)(2) limits a no-action letter to the party it was issued to. The new relief covers front-end software that lets Users see market data and send orders directly to a DCM, FCM, or IB, including event contracts and perpetuals. It isn't limited to crypto (fn. 14).

The relief goes further than the 2006–2008 technology-vendor letters (06-29, 08-07, 08-12) in several ways. PSPs may take a revenue share from the Registrant, charge Users per-trade fees, promote specific contracts, and solicit Users to specific Registrants, with no pre-existing relationship required. None of that fits the old TSV representations.

The trade-off is a set of ten conditions that make a PSP an IB in all but registration:

• no statutory disqualification;
• conflicts and Reg. 1.55-style risk disclosures, with User acknowledgments;
• compliance with NFA Rule 2-29 marketing standards as if registered, and no promotions that would need NFA pre-approval;
• 1.31 recordkeeping;
• an undertaking, filed with MPD, under which the PSP and each Registrant are jointly and severally liable and consent to CFTC jurisdiction.

Two details stand out. Footnote 22 asks PSPs affiliated with state or tribal governments to waive sovereign immunity, which is notable/odd given the state and tribal fights over prediction markets. And the relief is expressly “custodial”. Meaning margin stays with the DCO or FCM, and the PSP never holds User assets or routes orders at its discretion. So, the self-custody wallet is just the storefront and the collateral still sits in traditional FCM/DCO custody. The relief lasts until the Commission issues IB rulemaking or guidance for software developers.

Barrett Morris | Email

Prediction Markets

Prediction Markets Headed to the Supreme Court?

What Happened. Three pending certiorari petitions ask the Supreme Court to address whether the Commodity Exchange Act preempts state gaming laws as applied to sports-event contracts traded on federally regulated markets.

Pending Certiorari Petitions

Why It Matters. The petitions provide the Supreme Court with an opportunity to address conflicting appellate outcomes on a significant federal-state regulatory question, although Supreme Court review remains uncertain.

Factors Potentially Favoring Review

• The Third and Ninth Circuits reached different outcomes on whether sports-event contracts fall within the CEA framework that displaces state gaming regulation. After the petitions were filed, Kalshi lost an appeal in the Sixth Circuit, which will allow Ohio and Tennessee to enforce their sports betting laws against Kalshi, furthering solidifying the Circuit split.
• The issue has implications for multiple market participants and states in markets that have drawn increasing national and global attention, and the three petitions offer several potential vehicles for Supreme Court review.
• The petitions concern the scope of exclusive federal regulation over contracts traded on federally regulated markets.

Factors Potentially Weighing Against Review

• The cases arose at the preliminary-injunction stage rather than final decisions on the merits.
• The Court may prefer additional lower-court development or a more mature conflict.
• Ongoing CFTC regulatory activity could alter the governing framework or narrow the dispute.

Tiffany Payne and Nader Raja | Email

Say the Word: DMO Puts Mention Markets on Notice

On September 22, the Division of Market Oversight issued CFTC Letter No. 26-27. It covers contracts that settle on whether a named person says a word, shows up somewhere, or shakes a particular hand; staff calls these “Mention Markets.” Staff says it may treat them as presumptively readily susceptible to manipulation under DCM Core Principle 3 (CEA § 5(d)(3), 7 U.S.C. § 7(d)(3); 17 C.F.R. Part 38, App. C), and it expects a "heightened showing" in any Part 40 submission.

The timing makes sense and follows the CFTC’s August matter against White House teleprompter operator Gabriel Perez after finding he used advance access to the President's prepared remarks to trade presidential mention contracts on Kalshi. It’s also worth noting that Kalshi had reportedly already pulled its sports-related mention markets in August after reports of an internal CFTC review.

Now the nuance. The letter says it “does not create new obligations,” yet it announces a presumption and a four-factor rebuttal test:

1. whether the person whose conduct settles the contract has independent obligations that deter manipulation;
2. whether others could pressure or induce that person;
3. whether the outcome can be independently verified and draws substantial public scrutiny;
4. whether the DCM's own prophylactic controls are robust.

Staff hedges (“may view”), but practitioners should treat it as a presumption in everything but binding effect. The scrutiny factor also has a counterintuitive twist. The more meaningless the word, such as a stray buzzword on an earnings call, the more suspect the contract, because nobody is paying attention to it. The ideal Mention Market therefore settles on words that actually matter, which is an odd product to trade. Independent obligations like Reg FD or fiduciary duties help, but staff says they are no substitute for the DCM's own controls. Footnote 15 lays out the practical toolkit: restricted lists, third-party screening, employment attestations, pop-up confirmations before trading, and position limits sized so that manipulation is economically irrational.

None of this delists anything; Kalshi was still listing speech markets the day after the advisory issued. DCMs in this space should document their analysis of all four factors now rather than wait for staff to ask. Choose your words carefully: someone may be trading on them.

Barrett Morris and Tiffany Payne | Email

Interesting Links

• Federal Reserve Board releases to proposals establishing GENIUS Act regulatory framework
• Kalshi scores a tax victory in North Carolina
• SEC issues “Innovation Exemption” to facilitate trading of tokenized stock
• NYSE and Blockchain.com explore tokenized stocks
• CFTC issues No-Action Position on Large Trader Reporting for Direct Participants

Places We’ll Be

• ISDA’s Digital Assets Forum in D.C. on October 6
• ISDA’s Annual Legal Forum in NYC on November 5