On May 21, 2025, the Commodity Futures Trading Commission’s (CFTC’s) Market Participants Division (MPD) and Division of Market Oversight (DMO) jointly issued a staff interpretive letter regarding cross-border definitions and whether entities are U.S. persons under the Commodity Exchange Act (CEA). This letter clarifies the divisions’ view that the commission will determine an entity’s location based on where it is incorporated and where its high-level officers are based.
The letter was issued in response to a request for interpretation from a digital assets proprietary trading firm that is organized and headquartered abroad, and whose high-level officers primarily direct, control and coordinate firm activities from outside the U.S. However, the firm is indirectly owned by residents of the U.S., who also operate a related, U.S.-based, proprietary trading firm. The foreign-based firm sought to expand its activities into the U.S., including by engaging U.S.-based traders and licensing trading technology from its U.S.-based affiliate.
The firm sought clarity from the CFTC on whether its activities in the U.S. would make it a U.S. person for the purposes of the CFTC’s foreign futures and cross-border swap rules. Cross-border determinations arise under several CEA provisions. The CEA grants the CFTC authority to regulate foreign futures activity of persons “located in the United States,” and extraterritorial swaps activity that has a direct and significant connection to or effect on commerce in the U.S. The CFTC has adopted rules requiring futures commission merchants to register with the CFTC if they accept orders from customers “located in the United States” who transact in foreign futures or options. However, a futures commission merchant that transacts only on behalf of persons “located outside the United States” is not required to register with the CFTC. Foreign boards of trade are also required to register with the CFTC if they permit a person located in the U.S. to enter trades directly into their systems. Additionally, the CFTC’s cross-border swap jurisdiction relies on whether a person or entity is a U.S. person or non-U.S. person. Through various rules and guidance documents, the CFTC has developed different definitions of U.S. person applicable to these requirements.
In contrast to the CFTC’s prior approach, the letter advised that, for all the cross-border determinations discussed above, the firm was not a U.S.-based person based on one test: whether it was incorporated in the U.S. or had its principal place of business in the U.S. The letter clarified that it viewed “principal place of business” as “the location where its high level officers primarily direct, control, and coordinate [the company’s] activities.” Further, the fact that the firm planned to engage in certain U.S.-based activities did not affect the analysis: The divisions stated that it would not impact the entity’s status as a non-U.S.-based person if the company (1) engaged U.S.-based traders, researchers or software developers; (2) licensed certain trading technology from its U.S.-based related firm; or (3) hosted trading technology on U.S.-based servers. Instead, “place of organization and principal place of business are the factors that are of relevance in determining [an entity’s] cross-border status.”
The letter is an apparent departure from cases brought under the last administration. In the March 2023 case that the CFTC filed against Binance, the commission suggested it would look to the location of ownership and software development to determine U.S. personhood.
The determination of whether an entity is a U.S. person has cascading effects for other market participants. For example, had the firm been considered a U.S. person, the non-U.S. exchanges that it trades on could incur the obligation to register as swap execution facilities, and the non-U.S. brokers through which the firm trades could need to register as futures commission merchants. This interpretation will therefore be highly relevant not just for firms determining whether they are a U.S. person, but also for firms evaluating whether they would incur any regulatory risks because a customer is a U.S. person.
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