Corporate Counsel Daily, Commission issues an interpretation of certain cross-border definitions, (Jun 24, 2025)

By Suzanne Cosgrove

The CFTC’s Market Participants Division and Division of Market Oversight has issued an interpretative letter confirming the application of certain cross-border definitions to a proprietary trading firm organized in a foreign jurisdiction.

The interpretation, which was issued in response to a request from a proprietary trading firm, confirms several points, including that the proprietary trading firm:

• Is not a “person located in the United States” for purposes of the “foreign futures or foreign options customer” definition in Commission regulation 30.1(c)

• Is not a “participant located in the United States” for purposes of Commission regulation 48.2 (c)

• Is a “foreign located person” for purposes of Commission regulation 3.10(c)(1)(ii); and

• Is not a “U.S. person” as defined by Commission regulation 23.23(a) and the Commission’s 2013 Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations.

Definition background. As noted in the CFTC letter, Section 4(b) of the Commodity Exchange Act grants the Commission the authority to regulate the foreign futures activity of persons “located in the United States.”

The Commission implements this statutory authority with respect to foreign brokers who provide domestic customers access to foreign futures through its Part 30 regulations and with respect to foreign exchanges who provide direct access to domestic customers through its Part 48 regulations.

Why make the request? The request was initiated by SCB, a digital assets proprietary trading firm organized in the Bahamas and licensed as a digital assets business with the Securities Commission of the Bahamas. According to the request, SCB’s main office and headquarters are in the Bahamas and its officers, including its chief executive officer, chief operating officer, and chief compliance officer, primarily direct, control and coordinate activities from the Bahamas.

SCB operates additional offices in other non-U.S. locations and does not currently have offices in the U.S. Further, SCB is indirectly owned by a small number of closely associated natural persons who are residents in the United States. These persons are also co-owners and co-managers of a separate, U.S.-based proprietary trading firm, but the related firm does not provide trading services to SCB and SCB does not have access to the related firm’s trading algorithms.

Expansion goal. SCB stated it would like to expand its activities into the United States, particularly through the engagement of U.S.-based traders, quantitative researchers and software developers, all employed by an affiliate, SCB Advisors Limited (SCBA), a company organized in the Bahamas. SCB also would like to license trading technology from the related firm and host trading technology on U.S.-located servers.

In the event that SCB engages U.S.-based traders from SCBA and invests resources in the growing U.S. digital assets market, it requested a determination that it would nevertheless qualify as “located outside the United States” for purposes of the Commission’s futures regulations and as a “non-U.S. person” for purposes of the Commission’s swap regulation.

Staff interpretation. Based on the facts presented in the Request for Interpretation, the Divisions confirmed that, by virtue of SCB being a “non-U.S. person:”

• The non-U.S. exchanges on which SCB trades would not, solely on the basis of such trading by SCB, be subject to registration as a SEF pursuant to CEA section 5h(a)(1) and Commission regulation 37.3(a)(1); and

• The non-U.S. exchanges and brokers through which SCB trades would not, solely on the basis of the provision of such services to SCB, be subject to registration as an FCM pursuant to CEA Section 4d.

Regardless of SCB’s proposed expansion activities, the Divisions stated that they are of the view that SCB’s place of organization and principal place of business are the relevant factors when determining its cross-border status.

The Divisions noted the interpretation represents their position and does not necessarily represent the views of the Commission.

The CFTC Release No. 9077-25.

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