On May 21, 2025, the Commodity Futures Trading Commission’s (CFTC) Market Participants Division and Division of Market Oversight jointly issued Staff Letter 25-14 in response to a request from SCB Limited, a Bahamas-based proprietary trading firm engaged in digital asset futures, options, and swaps trading on non-US exchanges.[1]
In examining whether activity or ownership with a US nexus subjects a non-US firm to CFTC registration, reporting, and compliance obligations, CFTC staff provided useful guidance on the application of the following cross-border definitions:
In Depth
THE SCB REQUEST AND THE FACTS AT ISSUE
In its request, SCB stated that it would like to expand its activities into the United States through the engagement of US-based traders, quantitative researchers, and software developers. However, given its intended product mix of foreign futures and CFTC-regulated swaps and the potential interaction between US-based traders and SCB headquarters in the Bahamas, SCB first sought confirmation from the CFTC as to whether it would be “located in the United States” for purposes of the CFTC’s foreign exchange regulations or a “U.S. person” for purposes of the CFTC’s swap regulations.
The consequences of being “located in the United States” or a “U.S. person” in this context are far reaching and include:
- Any non-US exchanges that provide direct access to SCB to transact in foreign futures would be required to register with the CFTC as a foreign board of trade (FBOT).[2]
- Any non-US brokers that SCB uses to transact in foreign futures on non-US exchanges would be required to register with the CFTC as a futures commission merchant (FCM).[3]
- SCB’s trades in virtual currency options and perpetual contracts swap transactions would count toward the swap dealer (SD) de minimis threshold calculation and could subject SCB to SD registration.[4]
- Any non-US exchanges on which SCB trades swaps would be subject to registration as swap execution facilities pursuant to CFTC Regulation 37.3(a)(1).30
- Any non-US exchanges on which SCB transacts in swaps, as well as any non-US brokers utilized by SCB to engage in these transactions, would be subject to registration requirements as FCMs.[5]
- SCB’s swap transactions would be subject to the reporting requirements in Parts 43 and 45 of the CFTC’s regulations.[6]
THE CFTC STAFF’S INTERPRETATION
The CFTC staff clarified that whether SCB – or any similarly situated entity – is a US person depends on two key factors: “place of organization” and “principal place of business,” consistent with prior CFTC guidance and the Supreme Court of the United States’ Hertz ruling, which held that a corporation’s “principal place of business” is its “nerve center,” where officers direct, control, and coordinate activity.[7]
The CFTC concluded that because SCB was organized in the Bahamas and its officers operated from there, it qualified as a non-US person under all five relevant regulatory definitions. Specifically, the CFTC concluded that SCB is a “non-U.S. person” under the Swap Dealer De Minimis Exception, is not a “U.S. person” under the 2013 Cross-Border Guidance for swaps reporting rules, is a “foreign located person” for purposes of the Foreign FCM Exemption, is not a “person located in the United States” for foreign futures rules, and is not a “participant located in the United States” under FBOT rules.[8] Importantly, the CFTC staff explicitly rejected several factors as irrelevant to the US person analysis, noting that “(1) the engagement of U.S.-based traders, quantitative researchers and software developers employed by [a Bahamas affiliate]; (2) the licensing of certain trading technology from the related firm; and (3) the hosting of trading technology on U.S.-located servers, would not impact SCB’s status[.]”[9]
The CFTC concluded that, so long as SCB remained headquartered abroad and its management remained offshore, its various US connections did not transform it into a US person.
WHY IT MATTERS FOR THE CRYPTO INDUSTRY
Staff Letter 25-14 provides valuable guidance for crypto-native trading firms, market makers, liquidity providers, and exchanges operating cross-border businesses. The decentralized nature of digital assets and related services presents complications for determining an entity’s principal place of business and jurisdictional nexus. The CFTC’s approach in Staff Letter 25-14 is a significant step in resolving the ambiguity introduced by two recent enforcement actions. In 2023, the CFTC’s case against Binance suggested that US ownership, US-based developers, and technology infrastructure could create US person status and subject a non-US firm to full CFTC oversight.[10] Similarly, in a controversial 2024 enforcement action, the CFTC issued a cease and desist order against Falcon Labs, Ltd., an entity organized under the laws of the Seychelles for failing to register with the CFTC as a FCM..[11] In the Falcon Labs Order, the CFTC applied the jurisdictional test applicable to FCMs, in a manner which created a “novel U.S. location test” that “impose[d] new CFTC FCM registration requirements on non-U.S. brokers.”[12]
Staff Letter 25-14 rejects the novel theories advanced in the Binance case and Falcon Labs Order, returning to a more traditional focus on incorporation and management location in line with the Supreme Court’s ruling in Hertz.
LIMITATIONS AND KEY TAKEAWAYS
Staff Letter 25-14 offers important guidance for global crypto firms, emphasizing that incorporation and senior management location are central to determining US person status under CFTC cross-border rules. US ownership, staffing, technology licensing, or US-hosted infrastructure alone do not trigger jurisdiction under current interpretations, which reaffirms prior guidance and contrast with earlier aggressive enforcement stances. The letter, however, reflects staff views (not binding on the CFTC or courts) and applies narrowly to SCB’s facts, offering no safe harbors and leaving enforcement risk intact. While some ambiguity remains, the clarification helps ensure that incidental US ties do not automatically subject non-US firms to broad CFTC oversight.
Endnotes
[1] See CFTC Staff Letter No. 25-14 (May 21, 2025).
[2] 17 CFR 48.3(a).
[3] 17 CFR 30.4(a).
[4] 17 CFR 23.23(b)(1).
[5] 17 CFR 37.3(a)(1).
[6] 17 CFR Part 43, 17 CFR Part 45.
[7] Id. at 3. (“In the case of a legal person, such as a proprietary trading firm, the Divisions have taken the view that domicile is ascertained by looking to an entity’s place of formation, as well as its principal place of business.”); see also Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap Dealers and Major Swap Participants 85 FR 56924, 56936-37 (September 14, 2020); Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010).
[8] See Staff Letter 25-14 at 6-8.
[9] Id. at 7.
[10] See CFTC v. Chanpeng Zhao, et al., Case 1:23-cv-01887 (March 27, 2023).
[11] See In re Falcon Labs Ltd., Order Instituting Proceedings Pursuant to Section 6(c) and (d) of the Commodity Exchange Act, Making Findings, and Imposing Remedial Sanctions, CFTC No. 24-06 (May 13, 2024), (https://www.cftc.gov/media/10711/enffalconlabsltdorder051324/download); see also CFTC Press Release No. 8909-24, CFTC Issues Order Against Crypto Prime Brokerage Firm for Illegally Providing U.S. Customers Access to Digital Asset Derivatives Trading Platforms (May 13, 2024), (https://www.cftc.gov/PressRoom/PressReleases/8909-24).
[12] Concurring Statement of Commissioner Caroline D. Pham on Novel U.S. Location Test and FCM Registration (May 13, 2024), (https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement)
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