CFTC Opens the Door for Passive Software Providers in Derivatives Markets?

By: John Mikuta

In a new no-action letter, the Commodity Futures Trading Commission (“CFTC”) recently opened the door for software developers building software to facilitate trading in derivatives and futures.  The CFTC’s Market Participants Division (“MPD”) issued a no-action position providing that it would not recommend bringing an enforcement action against a “passive software provider,” or “PSP”, for failing to register as an introducing broker (“IB”) or associated person of an IB under the Commodity Exchange Act (“CEA”).[1]

As background, the CEA requires any person who, for compensation or profit, “is engaged in soliciting and in accepting orders” for futures and swaps to register as an IB.[2]  Individuals performing that work for an IB must also register themselves as associated persons.[3]  The CFTC has traditionally construed “soliciting and accepting orders” as including a variety of activities in addition to literally soliciting and accepting orders, including referring customers to a Futures Commission Merchant for a trading relationship.

Nevertheless, the CFTC has carved out some space before.  In a series of prior no-action letters in the late 2000s, the CFTC determined that certain technology services vendors (“TSVs”) were not IBs and did not have to register as such.[4]  The CFTC based its decision on conditions that:

(1) [E]ach customer will have established a relationship with a [Futures Commission Merchant (“FCM”)] or IB independent of its relationship with the software vendor; (2) the vendor would not recommend, propose, or encourage that customers use any particular FCM or IB, even upon request; (3) the platform would not produce express “buy” or “sell” signals; (4) the software vendor would not solicit or accept orders for any commodity futures or commodity option transaction; (5) fees charged by the vendor would not be related to any fees charged by the FCM or IB for the execution of any futures orders; and (6) the software vendor would not have a membership with trading privileges on any designated contract market (“DCM”) or derivatives transaction execution facility (“DTEF”).[5]

But with the development of smartphones, the advancement of internet technology, and the rise of new markets such as prediction markets and cryptocurrency, many modern products do not fit this mold.  Many software developers introduce customers to specific registered FCMs and IBs, promote specific contracts, and share revenue from fees charged by FCMs and IBs.  And retail customer demand to trade in CFTC-regulated markets has never been higher, driving demand for new trading apps and software.

The CFTC started to address this issue on March 17, 2026 when it issued a no-action letter (“Letter 26-09”) to Phantom Technologies, a software developer proposing to act as a TSV to a Designated Contract Market (“DCM”), FCM, or IB (collectively, a “Registrant”).  Phantom Technologies sought to allow users to trade via front-end interface software it developed, provided, and maintained.[6]  The software developer did not fit within the previously recognized TSV exception because users were not required to have a pre-existing relationship with a Registrant.

In Letter 26-09, the CFTC explained that a no-action position was warranted because the software developer’s involvement was limited to passively providing software for a user’s mobile device or browser, and the software developer would not have any affirmative involvement with any particular order.  But because Letter 26-09 was issued only to Phantom Technologies, other prospective PSPs could not rely on it.[7]

Accordingly, on September 17, 2026, the CFTC issued a no-action letter (“Letter 26-25”) that codified a no-action position for all prospective PSPs.  Until a new CFTC rulemaking or guidance addresses how the IB registration requirement applies to these PSPs, MPD will not recommend that the CFTC commence an enforcement action against a PSP for failing to register as an IB.

The no-action letter is limited to certain “covered activities” that a PSP can take.  PSPs can:

• Develop and distribute front-end software that lets users view market data, aggregate positions, browse contracts, and submit orders directly to a Registrant, without having any affirmative involvement in any particular order;
• Contract directly with Registrant and users and receive a share of a Registrant’s revenues;
• Market its services, including promoting specific derivatives contracts;
• Introduce users to—and solicit users to engage with—specific Registrants, as long as users face no contractual or operational barrier to going to those Registrants specifically; and
• Offer its software as either a standalone product or as an embedded feature of existing software. If embedded, the software must clearly distinguish CFTC-regulated activity from other activity.

Further, the no-action letter makes clear that users are still trading on a DCM either directly as a member or through an FCM or IB, that users’ collateral sits with the DCM’s Derivatives Clearing Organization (“DCO”) or an FCM, and that the PSP never holds or controls user assets, presents buy or sell signals, or exercises discretion over routing or trade execution.

The no-action relief comes with ten enumerated conditions.  PSPs must:

1. Ensure it, its principals, and its soliciting individuals are not subject to statutory disqualification;
2. Give users conflict-of-interest disclosures about its relationships with Registrants;
3. Give users a risk disclosure;
4. Onboard users as direct members (of a DCM) or customers (of an FCM or IB), with the user’s independent ability to access the Registrant retained;
5. Adopt and enforce marketing policies as if the PSP were a registered IB;
6. Refrain from engaging that would require pre-approval if the PSP were registered as an IB;
7. Execute a written understanding with each Registrant accepting joint and several liability for violations of the CEA or CFTC regulations arising from the covered activities;
8. Maintain consistent records;
9. Notify MPD if the PSP becomes insolvent or enters bankruptcy; and
10. File a notice with the MPD agreeing to the conditions and consenting to CFTC jurisdiction to investigate and take enforcement actions against the PSP.

The no-action letter provides a clear boon to PSPs looking to enter the growing and rapidly changing field of derivatives markets.  It offers a clear and manageable path for PSPs to market a derivatives interface, share revenue, and introduce users to specific Registrants without needing to undertake IB registration.

But the path is not easy.  The compliance framework is demanding.  PSPs must remain passive—they cannot solicit users, handle user funds, or control or recommend transactions.  PSPs will need to demonstrate to the CFTC which Registrants they are connected with as well as how users are onboarded independently with those Registrants.  Prospective PSPs who are considering developing derivatives-related software should carefully evaluate whether their activities fit the no-action letter.  While the benefits may be substantial, the lengthy list of conditions suggests that PSPs will need to be vigilant about complying with their regulatory obligations to ensure they don’t risk legal exposure.

[1] CFTC Staff Letter No. 26-25 (Sept. 17, 2026), available at https://www.cftc.gov/csl/26-25/download.

[2] 7 U.S.C. §§ 1a(31)(A), 6d(g).

[3] Id. § 6k(1).

[4] CFTC Staff Letter 06-29, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/06-29.pdf; CFTC Staff Letter 08-07, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/08-07.pdf; and CFTC Staff Letter 08-12, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/08-12.pdf.

[5] Staff Letter 08-12.

[6] CFTC Staff Letter 26-09, available at https://www.cftc.gov/csl/26-09/download.

[7] See 17 C.F.R. § 140.99(a)(2).