CFTC Staff Issue Interpretive Letter on Cross-Border Definitions

The CFTC staff have issued an interpretive letter regarding the application of cross-border definitions under the CFTC’s regulatory regimes covering swaps, foreign futures and foreign options transactions, and foreign boards of trade.

On May 21, 2025, the Markets Participants Division and the Division of Market Oversight of the U.S. Commodity Futures Trading Commission (CFTC) issued an interpretative letter[1] on the application of the following cross-border definitions to a proprietary trading firm organized in a foreign jurisdiction:

• “non-U.S. person” (as defined in CFTC Rule 23.23(a)(10)) for the purpose of applying the swap dealer de minimis threshold calculation (“Swap Dealer De Minimis Rule”);[2]
• “U.S. person” (as defined in the CFTC’s Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (“2013 Cross-Border Guidance”))[3] for the purpose of applying the swaps regulatory reporting rules (“Swaps Reporting Rules”);[4]
• “foreign located person” (as defined in CFTC Rule 3.10(c)(1)(ii)) for the purpose of applying the foreign futures commission merchant exemption in CFTC Rule 3.10(c)(2)(ii) (“Foreign FCM Exemption”);[5]
• “person located in the United States” (as defined in CFTC Rule 30.1(c)) for the purpose of applying the foreign futures and foreign options transactions rules (“Foreign Futures Rules”);[6] and
• “participant located in the United States” (as defined in CFTC Rule 48.2(c)) for the purpose of applying the foreign boards of trade rules (“FBOT Rules”).[7]

This interpretative letter provides market participants with factors that, according to the CFTC staff, are relevant in determining how the CFTC’s regulatory regimes covering swaps, foreign futures and foreign options transactions, and foreign boards of trade apply in a cross‑border context.

Regulatory Background

Swaps Regulation

In determining the cross-border application of the requirements applicable to swaps and swap dealers under Title VII of the Dodd-Frank Act (which include the Swap Dealer De Minimis Rule and the Swaps Reporting Rules), market participants need to first determine whether to apply the definition of “U.S. person” under CFTC Rule 23.23(a)(10) or the definition of “U.S. person” under the 2013 Cross-Border Guidance. As explained in the interpretative letter, the first definition applies for the Swap Dealer De Minimis Rule, and the second definition applies for the Swaps Reporting Rules.

Under the Swap Dealer De Minimis Rule, if the applicable person’s swaps dealing activity stays below the applicable thresholds, then such person is not required to register as a swap dealer. Relevantly, the types of swaps that are included in this calculation vary depending on whether or not such person is a “non-U.S. person” (as defined in CFTC Rule 23.23(a)(10)).

Under the Swaps Reporting Rules, whether the parties to a particular swap transaction are, or are not, a “U.S. person” (as defined in the 2013 Cross-Border Guidance) will determine whether or not the swap transaction needs to be reported to a swap data repository.

Foreign FCM Exemption

Under the Foreign FCM Exemption, a “foreign located person” engaging in the activity of a futures commission merchant (FCM) is not required to register with the CFTC if, subject to certain other requirements, it is only acting on behalf of “foreign located persons.”

Foreign Futures Rules

Under the Foreign Futures Rules, the CFTC regulates the foreign futures activity of persons located in the United States. Any foreign broker that solicits or accepts orders from a “foreign futures or foreign options customer” and also accepts money, securities, or property (or instead extends credit) to margin, guarantee, or secure any trades or contracts is required to register with the CFTC as an FCM. In determining if a person falls within the “foreign futures or foreign options customer” definition, one element of this definition is whether that person is a “person located in the United States.”

FBOT Rules

Under the FBOT Rules, if a foreign board of trade (FBOT) permits “direct access” to its electronic trading and order matching system, it must register with the CFTC. One element of the definition of “direct access” requires a determination of whether the applicable person seeking such access is a “participant located in the United States.”

Facts

A summary of the relevant facts are as follows:

• Business and Operations
• SCB Limited (SCB) is a digital assets proprietary trading firm organized in the Bahamas and licensed as a digital assets business with the Securities Commission of the Bahamas;
• SCB is engaged in market-making and other trading activity in spot and derivatives markets for virtual currencies and other digital assets, with such trading occurring over-the-counter and on exchanges (directly or through brokers);
• SCB’s derivatives trading includes futures, options, and perpetual contracts;
• SCB primarily uses automated algorithmic trading based on inputs from qualitative research staff, with these algorithms being overseen by traders who also trade manually.
• Organizational Structure
• SCB is indirectly owned by a small number of U.S. residents who also co-own and co-manage a separate U.S.-based proprietary trading firm (the “Related Firm”);
• SCB’s main office and headquarters are in the Bahamas, and there are no U.S.‑located offices;
• High-level officers direct, control, and coordinate SCB’s activities from the Bahamas;
• The Related Firm provides SCB with IT, legal, compliance, and administrative services but does not provide trading services and does not have access to SCB’s trading algorithms.
• Proposed Expansion Plans
• SCB stated that it would like to expand its activities into the United States by engaging U.S.-based traders, quantitative researchers, and software developers, who would all be employed by a Bahamas-organized affiliate, SCB Advisors Limited (SCBA).

SCB requested confirmation from the CFTC staff that these proposed expansion plans would not alter its status under the various cross-border definitions set out above and would therefore not trigger certain registration or reporting obligations for SCB or the exchanges and brokers that SCB currently trades.

CFTC Staff Interpretation

With respect to the Foreign Futures Rules, the FBOT Rules, and the Foreign FCM Exemption, the “location” of a legal person is a central consideration in determining the application of the various cross-border definitions applicable to these regimes. The CFTC staff noted in the interpretive letter that the CFTC has equated the “location” of a legal person with its domicile, which the CFTC staff view as being ascertained by looking at the particular entity’s place of formation as well as its principal place of business. The staff further noted that “principal place of business” has been determined to mean “the location from which the officers, partners, or managers of the legal person primarily direct, control and coordinate the activities of the legal person.”[8]

With respect to the swaps regulatory regime under Title VII of the Dodd-Frank Act (which includes the Swap Dealer De Minimis Rule and the Swaps Reporting Rules), both definitions of “U.S. person” (see above) use the phrase “principal place of business” to determine whether or not a legal person would fall within these respective definitions.[9] Under the 2013 Cross-Border Guidance, the CFTC noted that an entity organized outside the United States that had the “center of direction, control and coordination” of its business activities in the United States (i.e., the “nerve center”)[10] would be considered to have its principal place of business in the United States and therefore would be a “U.S. person” under the 2013 Cross-Border Guidance. For the purposes of the definition of “U.S. person” under CFTC Rule 23.23(a)(10), “principal place of business” is defined as “the location from which the officers, partners, or managers of the legal person primarily direct, control, and coordinate the activities of the legal person.”[11]

Given the above, the CFTC emphasized that a legal person’s place of organization and the location where its high-level officers direct, control, and coordinate its activities are critical factors in determining its cross-border status.

Consequently, based on the applicable facts, specifically that SCB’s place of organization and the location where its high-level officers primarily direct, control, and coordinate SCB’s activities are outside the United States (i.e., in the Bahamas), the CFTC staff concluded that SCB’s status under the cross-border definitions remained unchanged such that:

• SCB is a “non-U.S. person” (as defined in CFTC Rule 23.23(a)(10)) and is not a “U.S. person” (as defined in the 2013 Cross-Border Guidance) for the purpose of applying the requirements applicable to swaps and swap dealers under Title VII of the Dodd-Frank Act (including the Swap Dealer De Minimis Rule and the Swaps Reporting Rules);
• SCB is a “foreign located person” (as defined in CFTC Rule 3.10(c)(1)(ii)) for the purpose of applying the Foreign FCM Exemption;
• SCB is not a “person located in the United States” (as defined in CFTC Rule 30.1(c)) for the purpose of applying the Foreign Futures Rules; and
• SCB is not a “participant located in the United States” (as defined in CFTC Rule 48.2(c)) for the purpose of applying the FBOT Rules.

The consequences of this interpretation are as follows:

• The non-U.S. exchanges on which SCB trades directly would not be required to register as FBOTs under the FBOT Rules;
• The non-U.S. brokers through which SCB trades would be exempt from registration as an FCM due to the Foreign FCM Exemption;
• SCB’s swap dealing activity (i.e., its trading in virtual currency options and perpetual contracts) would not count toward its swap dealer de minimis threshold calculation under the Swap Dealer De Minimis Rules; and
• SCB’s swaps transactions would not be subject to the reporting requirements under the Swaps Reporting Rules.

Key Takeaways

When making a determination of whether or not a legal person falls within one of the cross‑border definitions (see above), the CFTC staff noted that the key factors relevant to such a determination are:

• the legal person’s place of organization; and
• the legal person’s principal place of business (i.e., the location where its high-level officers primarily direct, control, and coordinate activities).

In this particular case, the CFTC staff further noted that the following factors were not relevant in determining SCB’s status under the cross-border definitions:

• the engagement of U.S.-based traders, quantitative researchers, and software developers employed by SCBA;
• the licensing of certain trading technology from the Related Firm; and
• the hosting of trading technology on U.S.-located servers.

While market participants need to make their own determinations based on the particular facts and circumstances applicable to them, this interpretative letter provides useful insights into the CFTC staff’s views on which factors are, and are not, relevant.

[1] CFTC Staff Letter No. 25-14

[2] 17 CFR 23.23(b). Note that “non-U.S. person” is defined to mean any person that is not a “U.S. person” (as defined in 17 CFR 23.23(a)(23).

[3] 78 FR 45292 (July 26, 2013).

[4] 17 CFR Part 43 and 17 CFR Part 45.

[5] 17 CFR 3.10(c)(2)(ii).

[6] 17 CFR Part 30.

[7] 17 CFR Part 48.

[8] The interpretive letter noted the following CFTC publications and federal case law: 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) (citing the interpretation’s consistency with Hertz Corp. v. Friend and the SEC in its rule addressing the regulation of cross-border securities-based swap activities); Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010); Application of “Security-Based Swap Dealer” and “Major Security-Based Swap Participant” Definitions to Cross-Border Security-Based Swap Activities; Republication, 79 FR 47278 at 47310-47311 (August 12, 2014).

[9] The 2013 Cross-Border letter defined a “U.S. person” as including, but not limited to, in relevant part, “any corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund or any form of enterprise similar to any of the foregoing . . . in each case that is organized or incorporated under the laws of a state or other jurisdiction in the United States or having its principal place of business in the United States.” CFTC Rule 23.23(a)(10) defines “U.S. person,” in relevant part, as “a partnership, corporation, trust, investment vehicle, or other legal person organized, incorporated, or established under the laws of the United States or having its principal place of business in the United States.”

[10] Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations, 78 FR 45316 (July 26, 2013).

[11] 17 CFR 23.23(a)(23)(ii).