Better Markets presses the CFTC to bar exchanges from trading on their own platforms

The CFTC's figure of six, as Fischer relayed it ^[3], is a count taken at one moment. Showing a race would take an earlier count and the total number of CFTC-regulated exchanges to compare against. Better Markets dates the problem to the 2022 FTX application ^[18], so the "arms race" Fischer describes ^[17] rests on two points: one application then and the agency's count of six. The agency did not say which markets the six operate in. Fischer's guess is that they include prediction markets ^[4].

The count does not say how many exchanges run affiliated market makers, and those are what the dispute is about. The CFTC's approach, as Fischer described it, already stops exchanges from proprietary trading ^[5]. The six are doing something the agency also wants ended. Better Markets wants a complete ban on an exchange trading on its own platform, carve-out included ^[1]. Fischer said the agency's distinction will not hold: "that line is porous, and we argue it will be difficult to enforce" ^[6].

The two activities are defined by purpose. Proprietary trading is for the firm's own benefit, while a market maker supplies buying and selling to keep a market liquid ^[15]. In my view purpose is the weak point. A surveillance team sees orders and has to infer why they were sent.

The conflict itself is about structure. An exchange in this position runs the marketplace while an affiliate trades on it ^[14]. Fischer said the group believes such combinations create problems that internal rules or policies cannot simply solve ^[2]. It questioned whether an exchange can enforce its rules fairly when it has a business interest in one member, or an interest that runs against a competitor ^[8].

Fischer's sharpest argument is about liquidity. When outside firms won't supply enough liquidity and an exchange has to lean on a market maker it is affiliated with, she argued, whether that contract should be listed at all is open to question ^[7]. Outside firms declining to quote a contract tells the exchange something about demand for it. I'd expect an in-house quoter to mask that signal.

The rules are still open. The CFTC's October 5 notice on leveraged retail crypto trading seeks feedback before any proposal ^[10], and it asks about platforms that combine trading, clearing and custody ^[11]. Chairman Michael Selig said the agency wants future rules to provide "clarity, certainty, and consumer protections" ^[12]. Better Markets argues the CFTC is the wrong agency to give retail crypto customers the protection they need ^[16]. "Unlike the SEC, the CFTC lacks an investor protection mandate," said Benjamin Schiffrin, the group's director of securities policy ^[13].