CFTC Proposal Tests In-House Market Makers

The CFTC opened a new conflict-of-interest rulemaking on July 30 for firms that sit on both sides of derivatives-market infrastructure. The CFTC affiliation proposal release says the proposal would amend Parts 37, 38 and 39 of its regulations, plus rules 1.52 and 1.55.

The unanswered question is how far the agency will let a vertically integrated exchange, clearinghouse, broker or market maker go before affiliation becomes a market-integrity problem.

What the CFTC proposed

The CFTC says it has observed more affiliations among regulated entities, including derivatives clearing organizations, designated contract markets, swap execution facilities, futures commission merchants and market makers. The proposal is meant to address perceived and potential conflicts of interest in those structures.

It is not a final rule. Comments will be accepted for 60 days after Federal Register publication, so the precise deadline depends on that publication date.

Why the market-maker line matters

The proposal lands as event-contract and 24-hour market structures are forcing older derivatives rules into faster trading models. On July 24, the CFTC's Division of Market Oversight separately issued a CFTC event-contract self-certification advisory, warning designated contract markets against broad template-style certifications that do not give staff enough detail to assess settlement methods, data sources and core-principles compliance.

The July 30 proposal is a different action, but the connection is practical. If an exchange or clearing venue also has affiliated liquidity providers, the regulator has to decide which safeguards make the venue open enough for participants who do not share the same ownership. That same market-structure pressure also sits behind the SEC 24-hour trading roundtable.

The current rule backdrop

Existing swap-execution rules already use affiliation as a market-access boundary in some places. The Current 17 CFR Part 37 text says a request-for-quote system for required transactions must send a quote request to at least three market participants, and those participants must not be affiliates of the requester or controlled by each other.

That does not answer the new proposal by itself. It shows why affiliation is not a cosmetic label in derivatives market structure. It can determine whether a trading protocol exposes interest to independent counterparties or keeps too much execution inside a related group.

There is also recent rule-history context. In September 2025, the agency issued a CFTC 2025 Parts 37 and 38 withdrawal so it could reconsider earlier changes in light of public comments, industry developments and market-structure changes.

What comes next

The next hard records are Federal Register publication, comment letters, any extension, and a later Commission vote or withdrawal. Until then, the safest description is narrow: the CFTC is asking how to police affiliated derivatives-market structures, not banning them. The narrower data-reporting question remains separate from the SEC-CFTC swap data reporting request.

The market should watch two lines in the comments. First, whether trading venues argue that affiliated market makers are needed for liquidity in newer products. Second, whether users and competitors argue that common ownership can tilt access, surveillance or execution quality.

That is the live tension. Faster markets need liquidity, but the CFTC is asking how much of that liquidity can come from inside the same house.

This article is informational only and is not investment, legal, tax or accounting advice.