CFTC Retail Direct Clearing Request for Comment: Key Takeaways on Retail DCOs, FCM Protections, and Event Contract Market Integrity

De Silva Law Offices submitted a comment letter to the Commodity Futures Trading Commission (CFTC) in response to staff’s Request for Comment on the Direct Clearing of Derivatives by Retail Participants.

The CFTC’s request focuses on a fast-moving market structure shift: some derivatives clearing organizations, or DCOs, are beginning to clear trade directly for retail participants without an intermediary.  In the traditional futrures market model, retail customers clear through a futures commission merchant or FCM.

A DCO is a CFTC registered clearinghouse. It sits between buyers and sellers after a trade is executed, becomes the counterparty to each side, collects collateral, and manages default and settlement so that trades can be completed even if one participant fails.

These retail-direct models are often fully collateralized, meaning the clearinghouse holds collateral up to the contract’s maximum payout. They are also increasingly hybrid, allowing some retail traders to clear directly while others clear through an FCM.

The U.S. futures markets are among the most liquid and transparent in the world. A meaningful part of that resilience comes from intermediation and supervision that is concentrated at the futures commission merchant (FCM) level. The RFC asks what happens when that protective layer is bypassed, and which safeguards need to be rebuilt, redesigned, or required by rule.

This post provides highlights from the comment letter. The full letter is intended to be read in full on the CFTC’s public comment file for this request.

1. “Fully collateralized” addresses one risk. It does not address the retail risk profile regulators actually confront.

The RFC correctly notes that fully collateralized retail clearing can reduce a narrow category of clearinghouse exposure: the risk that a participant cannot satisfy an obligation beyond posted collateral.

That does not mean retail risk is solved. The comment letter emphasizes that the most consequential retail risks often sit elsewhere: operational outages, misleading marketing, weak supervision of customer-facing activity, settlement and dispute governance, information asymmetries, and manipulation in thin markets.

2. Retail protection remains strongest when the FCM is the regulatory anchor.

The letter’s core recommendation is straightforward. If an entity is directly onboarding retail, holding retail collateral, setting retail access criteria, and servicing retail accounts, it is performing functions that the Commission has historically regulated through the FCM layer. Retail customers should receive substantively comparable protection whether clearing is intermediated or direct.

The simplest path to consistent outcomes is to require that retail clearing occur through an FCM, whether affiliated or non-affiliated. Where direct retail clearing is permitted, the Commission should require functional equivalents for the most consequential FCM protections.

This point aligns with the thrust of other submissions in the docket, including Robinhood Derivatives and the World Federation of Exchanges: the FCM framework is the Commission’s most mature retail customer protection regime, and it is not easily replicated through DCO core principles alone.

3. Affiliated FCM “captivity” is not a retail-protection solution. It can amplify conflicts.

The letter favors FCM intermediation in most cases. It does not treat mandatory affiliation as necessary. A requirement that retail clear only through an affiliated FCM risks creating a captive model that concentrates commercial incentives, customer-facing distribution, and clearing risk decisions within one corporate group.

A cleaner alternative is to preserve the benefits of intermediation while allowing retail customers to clear through an affiliated FCM or one or more non-affiliated FCMs. That approach preserves the existing retail protections embedded in the FCM and NFA regimes, promotes competitive discipline on service and disclosures, and reduces the risk that a single group’s incentives erode protections through subtle design choices.

4. Hybrid models raise a specific systemic question: risk transfer that does not look like market risk.

The RFC highlights an important structural concern. Hybrid models can create pathways where losses associated with direct retail participants are imposed on other clearing members through mutualized loss arrangements, even where “product exposure” is fully collateralized.

The letter builds on that point. Risk transfer is not limited to price movement. It can arise from operational incidents, settlement disputes, custody events, cyber events, or liquidity stress that triggers extraordinary assessments or draws on shared resources.

Accordingly, a hybrid DCO should ring-fence default resources by clearing model and, where appropriate, by product class. Retail direct clearing should not be permitted to draw on resources funded by intermediated clearing members absent explicit consent and Commission review of incentives and fairness.

5. Trading ahead, payment for order flow-style incentives, and proprietary trading against retail flow are not side issues.

Retail direct clearing models often arise in vertically integrated structures where one corporate group may control retail distribution, market design, clearing parameters, and default management. The letter urges that conflicts in these structures be treated as central risks, not peripheral compliance issues.

One conflict deserves explicit attention: information asymmetry created by access to nonpublic customer order and position information. Where an affiliated market maker or proprietary trading desk provides liquidity in the same products, the incentive and ability to trade ahead of customers, or to exploit retail flow, becomes a market integrity problem.

The comment letter recommends several concrete safeguards: (1) clear prohibitions on the use of confidential retail order and position data for proprietary trading, (2) robust information barriers with independent testing, and (3) transparent disclosure of any economic arrangements that create incentives to route retail flow to affiliated liquidity providers.

6. Event contracts are driving these models, and they change what “retail protection” must mean.

The RFC and the CFTC staff press release acknowledge that the growth in retail direct clearing has been driven, in significant part, by prediction and other event-type markets, often through binary-outcome contracts.

The letter makes a product-structure point that matters for policy. Retail-facing event contracts are often short-horizon, binary outcome instruments that can function as wagering substitutes for many users. That is not a moral characterization. It is an observation about how the product is packaged, used, and experienced at retail scale.

When the product behaves that way, the most pressing regulatory questions shift. The center of gravity is less about classic margin spiral concerns and more about customer conduct, marketing discipline, and integrity controls.

That reality informs three recommendations in the letter: (1) minimum retail disclosures tailored to binary and event-type products, including prominent disclosure that payoff is step-function and that “offsetting” depends on liquidity, not entitlement, (2) manipulation and integrity controls that match thin event markets, including surveillance and restrictions on trading by persons with influence or nonpublic information, and (3) product governance that takes seriously the Commodity Exchange Act’s event contract “special rule,” including the statute’s reference to gaming and the Commission’s public-interest role in this overlap category.

7. A Retail DCO subcategory is worth serious consideration, if only to prevent regulatory arbitrage by structure.

The staff request explicitly asks whether a separate DCO registration subcategory for Retail DCOs is needed, and it points to risks around retail protection, governance, conflicts of interest, market conduct, and transparency.

The comment letter supports a tailored Retail DCO subcategory, or at least enhanced conditions that apply to Retail DCOs, because the retail direct model introduces retail conduct and market integrity risks that are not central to Part 39’s design.

A key point is incentive-based. If retail direct clearing becomes a path to avoid the FCM framework, activity will predictably migrate toward that path. The right response is not hostility to innovation. It is designing rules so that innovation does not depend on avoiding the most important protections.

8. Reporting should be recalibrated to capture the risks collateralization does not capture.

The letter recommends enhanced reporting that separates direct retail clearing activity from intermediated clearing activity, including concentration metrics, activity levels, and liquidity measures. Retail event products can experience sharp, correlated surges around public events. The Commission should be able to see that clearly.

It also recommends standardized reporting of operational incidents, settlement disputes, error rates, and complaint volumes. These can be leading indicators of retail harm and integrity problems, and they are not addressed by the fact that collateral equals a maximum payout.

Sources

Commodity Futures Trading Comm’n, CFTC Staff Seek Public Comment on Direct Clearing by Retail Participants, Press Release No. 9158-25 (Dec. 18, 2025).

Commodity Futures Trading Comm’n, Comments for General CFTC Request for Comment on the Direct Clearing of Derivatives by Retail Investors (Docket, Opened Dec. 18, 2025; Closes Feb. 2, 2026).