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America won’t import regulatory fashions that hold markets back, writes CFTC chair Michael Selig.
- The global derivatives market exceeds $1.2 quadrillion in notional value, with nearly half under the jurisdiction of the Commodity Futures Trading Commission.
- From CFTC-regulated bitcoin futures to the first “true” bitcoin perpetual, stablecoin collateral and round-the-clock gold futures, America is extending crypto foundations to broader markets.
- Prediction markets under the Commission’s jurisdiction aid price discovery and forecasting, despite nine European regulators calling event contracts gambling.
The global derivatives market has entered a new era, and the United States is leading it. For decades, derivatives — financial contracts such as futures, options and swaps, whose value is based on the price or performance of an underlying asset — have served as a tool for businesses, farmers, investors and financial institutions to manage risk and allocate capital efficiently.
What was once a niche financial tool now underpins a market with over $1.2 quadrillion (million billion) in notional value. Nearly half of that market falls under the jurisdiction of the Commodity Futures Trading Commission (CFTC), which I have led since December.
Global derivatives notional value
Share under CFTC jurisdiction
Bitcoins held by bitcoin exchange-traded products
How America built its derivatives lead
American leadership in derivatives was built over generations through competitive markets, strong institutions, sound regulation and a willingness to embrace innovation.
In many market segments, gone are the days of traders shouting in pits in New York and Chicago, or even the screen-based trading of the 2000s. Derivatives markets have evolved into increasingly autonomous ecosystems driven by automated trading, artificial intelligence, algorithmic execution and real-time decision-making, reacting to information thousands of times faster than any human could.
For many years, international financial regulation has operated under an assumption that regulatory priorities would emerge through broad consensus among global institutions and regulators from different countries. Although international co-operation remains important, America is not in the business of importing regulatory trends designed by agencies that are considering yesterday’s markets built around limited trading hours, single exchanges and screen-based trading.
Bitcoin futures, perpetuals and stablecoins
Instead, America is once again a hub of financial innovation. During President Donald Trump’s first term, the launch and expansion of CFTC-regulated bitcoin futures helped bring crypto assets into mainstream finance by providing institutional investors with transparent, regulated exposure to such assets.
That foundation transformed bitcoin from a fringe asset into one increasingly integrated within the broader financial system: bitcoin exchange-traded products now hold over 1.2m bitcoins, compared with essentially none in 2016.
During Mr Trump’s second term the CFTC has approved the first “true” bitcoin perpetual contract as a futures contract. Now the CFTC is helping extend the foundations laid in crypto markets to the broader financial system as capital markets enter the digital age.
Perpetual, or “perp” — a derivative contract with no fixed expiry date, instead relying on a periodic funding rate mechanism — a payment between traders — designed to maintain relative price parity with the underlying asset’s spot price.
Congress recently passed legislation creating the first comprehensive federal framework for dollar-backed stablecoins usable for payments, and laying the foundation for broader integration of crypto assets into the financial system. The CFTC is exploring how regulated stablecoins can be used as collateral, modernising market infrastructure while maintaining the safety and integrity that have made American derivatives markets world-leading.
Round-the-clock trading and prediction markets
Our innovation extends well beyond crypto assets. This year we launched America’s first major exchange offering round-the-clock trading for gold futures. The CFTC is also engaging with market participants in the potential development of perpetual futures for non-crypto assets.
At the same time, prediction markets, which exclusively fall under the Commission’s jurisdiction, have shown their value as a powerful tool for price discovery.
Whereas America is embracing responsible innovation, many of our international counterparts are moving in the opposite direction. Recently, nine European financial regulators argued that the event contracts traded on prediction markets should be treated as gambling rather than financial instruments.
That view misunderstands how these contracts are structured and underappreciates the fact that they are traded on marketplaces and not wagers placed with a “house”. It also ignores the role these markets play in aggregating information, improving forecasting and enhancing price discovery.
Prediction markets often outperform traditional polls and experts — they alone correctly forecast Mr Trump’s electoral victory against Kamala Harris in 2024. Research from the Federal Reserve shows that prediction markets perform as well as or better than traditional estimates for economic indicators like the Fed Funds rate and consumer-price index.
Global rules must keep pace with markets
To remain effective, global regulatory frameworks must evolve as quickly as the markets they oversee. History has shown that American leadership has been strongest when we have embraced innovation early, from the railroads and aviation to the internet and electronic trading, shaping global standards rather than waiting for others to do so. That philosophy extends to our international regulatory relationships.
Cross-border co-operation remains valuable, but access to the world’s deepest and most trusted derivatives markets is a privilege. International agreements, Foreign Board of Trade registrations and supervisory arrangements should be regularly modernised to reflect evolving market structures and technology advances, while furthering the interests of American markets and protecting market participants.
Regulators around the world have long looked to the United States for leadership in policing derivatives. That should continue, with America setting sound policy so innovation can flourish. The future of financial markets will belong to those willing to push boundaries while preserving market integrity. America has shown that these goals are not in conflict. Others are free to chart their own course. We intend to remain the global gold standard.
Michael Selig is chair of the Commodity Futures Trading Commission.
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