Regulators Team Up to Close Gaps Stifling Financial Innovation

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have released a joint statement outlining plans to explore the expansion of 24/7 capital markets and regulatory harmonization to support evolving financial products. The agencies emphasized the need for greater coordination to address the convergence of securities and non-securities markets and to foster innovation while ensuring investor and customer protections. This move aligns with the broader goals outlined in the President’s Working Group on Digital Asset Markets report, which aims to strengthen America’s leadership in digital financial technology.

According to the joint statement from SEC Chairman Paul S. Atkins and CFTC Acting Chairman Caroline D. Pham, the SEC and CFTC must collaborate to eliminate regulatory "no man’s lands" and reduce legal uncertainty that has stifled financial innovation. They noted that the current fragmented oversight landscape has pushed novel products overseas, and that harmonization of regulatory frameworks could help reverse this trend. The statement highlights several priority areas for coordination, including the expansion of trading hours, the development of event contracts, and the regulation of perpetual contracts.

A key focus of the joint initiative is the potential expansion of trading hours beyond traditional market windows. The regulators stated that extending trading hours could better align U.S. markets with the global, always-on economy, particularly for asset classes such as foreign exchange, gold, and crypto assets that already trade continuously. However, they emphasized that such a shift must be implemented with care, considering operational feasibility and liquidity, and may vary in viability across different asset classes.

In addition to 24/7 trading, the agencies are exploring the regulatory clarity needed for event contracts—derivatives tied to the outcome of specific events such as sports, elections, or market benchmarks. These products, while existing in various markets for decades, are experiencing renewed interest and demand. The SEC and CFTC plan to examine how these contracts can be offered to U.S. market participants in a way that adheres to investor protection standards and regulatory frameworks.

Perpetual contracts, which are derivatives without a defined expiry date and common in offshore crypto markets, are another area of focus. The regulators noted that jurisdictional and definitional constraints have limited their use in the U.S., and they are considering steps to enable these products to trade onshore. Such a move could bring U.S. traders access to products with transparent leverage limits and robust risk management, while capturing economic activity currently directed to foreign platforms.

The joint statement also outlines plans for a roundtable on regulatory harmonization, scheduled for September 29, 2025. The event will serve as a platform to discuss potential areas of coordination and explore how existing statutory authorities can be leveraged to create a regulatory environment that supports innovation. The agencies emphasized the importance of fostering cross-market strategies through coordinated margin frameworks and streamlined reporting standards. Such efforts could reduce capital inefficiencies, free up balance sheet capacity, and lower barriers for institutional and retail participation in complex trading strategies.

The joint statement reaffirms the commitment of both agencies to support the development of decentralized finance (DeFi) and peer-to-peer trading protocols. It highlights the potential for "innovation exemptions" that would allow market participants to engage in spot crypto trading over DeFi platforms while ensuring compliance with investor protection standards. The statement underscores the importance of self-custody in the crypto space and encourages market participants to collaborate with regulatory staff as they develop and implement onshore trading solutions.

The joint efforts of the SEC and CFTC reflect a broader shift in the U.S. regulatory landscape toward a more flexible and agile approach to financial innovation. By working collaboratively, the agencies aim to create a regulatory environment that supports technological advancements while maintaining the integrity and stability of U.S. capital markets.

Source:

[1] Joint Statement from the Chairman of the SEC and Acting (https://www.sec.gov/newsroom/speeches-statements/joint-statement-atkins-pham-090525)

[2] SEC and CFTC Propose Shift to 24/7 Financial Markets (https://cointelegraph.com/news/sec-cftc-statement-24-7-capital-markets)

[3] Joint Statement from the Chairman of the SEC and Acting (https://www.cftc.gov/PressRoom/SpeechesTestimony/phamatkinsstatement090525)

[4] SEC-CFTC Joint Staff Statement (Project Crypto- (https://www.sec.gov/newsroom/speeches-statements/sec-cftc-project-crypto-090225)

[5] SEC, CFTC unveil digital asset collab. To explore offsetting (https://www.ledgerinsights.com/sec-cftc-unveil-digital-asset-collab-to-explore-offsetting-collateral-for-spot-derivatives/)