Market Regulators Team Up for 24-Hour Trading and Event Betting

Paul Atkins, chairman of the SEC, and Caroline Pham, acting chair of the CFTC. (Getty Images / Bloomberg)

The government’s stock and commodity regulators will align their sometimes disjointed rules to promote new initiatives in round-the-clock trading, decentralized digital finance, portfolio margin loans, and prediction markets where traders bet on events such as elections.

“Working together, we can ensure that the next chapter of financial innovation is written right here in America,” said Securities and Exchange Chairman Paul Atkins in a Friday news conference. His agency also announced a task force to tackle “pump and dump” schemes in the U.S. stocks of foreign companies, particularly those from China.

With the Commodity Futures Trading Commission, the SEC will host a roundtable on Sept. 29 to discuss ways to harmonize their regulation of these new activities. Many of the innovations are associated with cryptocurrency trading, an industry that President Donald Trump has tasked the market regulators to promote.

“You’ve already seen our agencies working together to deliver on the president’s crypto agenda,” said Caroline Pham, the CFTC’s acting chair. “But why stop there?”

The regulators said that novel financial products have been driven overseas by “fragmented oversight and legal uncertainty.” Pham and Atkins vowed to bring those businesses onshore.

A joint statement by the agency heads named the activities they will discuss at the roundtable and collaborate in regulating. On the list is 24-hour trading, which already exists in foreign exchange, gold, and crypto assets. The agencies will examine whether markets for other assets would have enough round-the-clock participants to support always-on trading.

Another area of focus is event contracts, bets on the outcome of a particular event, such as an election. Brokers like Robinhood Markets and Interactive Brokers Group are hosting rising volumes in such trades. The SEC and CFTC said they would align their rules to provide clarity for firms that want to list event contracts, including those based on securities.

Another problem they hope to solve concerns collateral for margin loans against stocks and bonds, as well as against derivatives that are bets on those stocks and bonds. Traders complain they must post collateral separately at exchanges regulated by either the SEC or the CFTC—even when even when their positions hedge each other in real economic terms. By letting clearinghouses offer margins on a trader’s overall portfolio, the agencies could free up capital for traders.

Finally, the regulators invited entrepreneurs to come and discuss “innovation exemptions” to allow decentralized peer-to-peer trading in crypto assets. The idea is that the trading could occur away from federally regulated exchanges, using so-called DeFi protocols.

These might involve spot, leveraged, and margined crypto assets. Another new kind of derivative the regulators might allow are perpetual contracts, with no defined expiration date. The agencies are considering whether to permit perpetual contracts on exchanges that they already regulate, or on decentralized DeFi platforms.

Another new initiative announced Friday is an SEC cross-border task force to target pump-and-dump manipulation of U.S.-listed companies from other jurisdictions, such as China.

“We welcome companies from around the world seeking access to the U.S. capital markets,” said Atkins in the announcement. “But we won’t tolerate bad actors—whether companies, intermediaries, gatekeepers or exploitative traders.”

The agency mounted a similar task force in 2011 that credited its formation, in part, to an award-winning *Barron’*s story. The article discussed the problems caused by Chinese companies that had risen to some $50 billion in market capitalization and then crashed, after obtaining “backdoor” stock exchange listings. Citing the story, Nasdaq tightened its listing rules, too.

Write to Bill Alpert at william.alpert@barrons.com