NFA Calls for New Regulatory Framework for Retail Derivatives Clearing: What It Means for Event Contract Markets
By R Tamara de Silva | De Silva Law Offices, LLC | March 4, 2026
Retail investors can now trade derivatives directly through clearinghouses, bypassing the intermediaries that have historically stood between them and the market. This is a significant shift. It is also one the existing legal framework was never designed to handle.
Earlier this year, De Silva Law Offices submitted a comment letter to the Commodity Futures Trading Commission (CFTC) in response to its Request for Comment on the Direct Clearing of Derivatives by Retail Investors (RFC121725). The Commission asked the public and industry participants to weigh in on a fundamental structural question: what does it mean, legally and practically, for retail traders to access derivatives markets without an intermediary? That question has only grown more pressing as retail-facing, non-intermediated clearinghouses have multiplied, particularly in the digital asset and event contract space.
On February 27, 2026, the National Futures Association (NFA) filed its own comment letter on the same request. The NFA is the derivatives industry's primary self-regulatory organization (SRO). Its letter is carefully argued and worth reading in full. Having reviewed it, I find myself in substantial agreement with its central recommendation: Congress should create a new, separate registration category for retail derivatives clearing organizations. Trying to retrofit existing statutory categories to accommodate a market structure they were never designed to handle is not a regulatory solution. It is a workaround, and workarounds tend to leave customers exposed.
The Commodity Exchange Act Was Not Built for This
The Commodity Exchange Act (CEA) establishes a framework in which distinct entities perform distinct functions. Designated Contract Markets (DCMs) provide centralized trading venues. Derivatives Clearing Organizations (DCOs) manage counterparty risk and ensure settlement between anonymous parties. Futures Commission Merchants (FCMs) serve as the customer-facing intermediaries. FCMs accept funds, extend credit, maintain capital, and carry the regulatory obligations that protect retail participants. Each role is assigned to a specific registration category with its own oversight requirements.
This architecture was deliberate. The NFA letter makes the point well: the DCO definition under Section 1a(15) of the CEA omits the very activities that require FCM registration, including soliciting accounts, accepting orders, and holding customer funds to margin or secure trades. That omission is not accidental. It reflects a legislative structure in which customer-facing responsibilities belong with FCMs, not with clearinghouses. Congress said what it meant.
A retail DCO that accepts customer funds directly and interfaces with retail participants without an FCM intermediary is doing what the CEA allocated to FCMs. The fact that a DCO or DCM can be licensed and operational does not mean it can substitute for an FCM. As the NFA correctly observes, using one Congressionally authorized registration category as a stand-in for another is not a permissible interpretation. It requires Congressional authorization to change.
What Customers Lose When FCMs Are Removed from the Chain
FCM intermediation is not administrative overhead. It is where most retail customer protection actually lives. FCMs must maintain capital. They segregate customer funds and invest them within strict parameters. They comply with know-your-customer and anti-money laundering requirements. The NFA imposes sales practice rules and risk disclosure obligations on its FCM members. The CFTC's Part 1 regulations impose detailed capital and segregation requirements with no equivalent in the core principles applicable to DCOs.
When retail participants trade through a retail DCO without an FCM in the chain, they lose all of that. This is not a theoretical concern. It is an existing gap the current proliferation of retail DCOs has made concrete. The NFA's letter highlights one particularly serious dimension of this gap: what happens to customer funds in bankruptcy.
The U.S. Bankruptcy Code and DCO rules provide priority protections to FCM customers in the event of a DCO default. When retail participants deal directly with a retail DCO, particularly one operating a hybrid model, that priority question becomes murky. Congress has not addressed it. The existing rules do not fill the void. For a retail participant who has deposited funds with a retail DCO and finds themselves in an insolvency proceeding, the absence of clear priority rules is not a technical footnote. It could mean the difference between recovery and loss.
Congress Has Done This Before
The NFA's recommendation that Congress create a new registration category for retail DCOs is well-grounded in legislative history. When market structures emerge that do not fit within the CEA's existing categories, the right response is legislation. The NFA cites two clear examples from the past fifteen years.
When off-exchange, principal-to-principal retail foreign exchange markets developed, Congress responded by creating the Retail Foreign Exchange Dealer (RFED) registration category. When the swaps market required a regulatory framework, Congress created the Swap Dealer category and gave the CFTC authority to write rules governing those activities. In both cases, Congress recognized that a new market structure required a new statutory foundation. Stretching existing categories was not the answer.
Legislation provides certainty. It protects market participants from legal ambiguity, insulates the regulatory framework from challenge, and ensures that oversight obligations are calibrated to the activities being performed. Regulatory workarounds do none of those things. They create the appearance of oversight while leaving the underlying structure unresolved.
The CLARITY Act Points the Way
The most instructive parallel is now unfolding in digital asset regulation. On July 17, 2025, the House of Representatives passed the Digital Asset Market Clarity Act (CLARITY Act) on a bipartisan basis. The CLARITY Act creates a new registration category, the Digital Commodity Exchange (DCE), specifically designed to govern entities that directly accept and hold retail customer funds in spot digital commodity markets. Section 404 establishes segregation requirements and requires DCEs that hold customer funds to become members of a registered futures association (RFA). That last requirement matters. It builds an SRO oversight layer into the new category from the start rather than leaving the CFTC as the sole front-line regulator.
The Senate Agriculture Committee advanced a companion measure on February 2, 2026. The Digital Commodity Intermediaries Act (DCIA) also creates a new Section 5i of the CEA for digital commodity exchanges and contemplates direct retail customer relationships. Its approach to oversight differs from CLARITY in one significant respect. Rather than requiring RFA membership, the DCIA directs the CFTC to adopt rules imposing customer protection requirements directly. Whether Congress ultimately resolves this difference in favor of SRO-based oversight, direct Commission oversight, or some combination, the underlying principle in both bills is the same: a new market structure requires a new statutory framework tailored to its particular characteristics and risks.
This is precisely the approach the NFA recommends for retail DCOs. The CLARITY Act and DCIA are useful not merely as precedents but as models. They demonstrate that Congress is willing to act when market structures outpace existing statutory categories, and that the resulting legislation can be calibrated to the specific risks a new structure presents. The retail DCO problem calls for the same response.
What a New Category Should Accomplish
The NFA recommends limiting any new retail DCO registration category to entities that act as settlement agents for fully collateralized, fully pre-funded contracts. Entities clearing margined or leveraged products would continue under the existing framework, with FCM intermediation intact. That is a sensible line to draw. The case for FCM intermediation is strongest where leverage is involved, because counterparty exposure and the risk of customer fund loss are greatest in that context. A retail DCO category limited to pre-funded, fully collateralized contracts targets the segment of the market where the mismatch between current regulatory structure and market reality is most acute.
Beyond scoping the category, any new framework would need to resolve several issues the current structure leaves open. Customer fund protections equivalent to those applicable to FCM customers should apply to retail DCO participants. The NFA is right that the current regime creates an uneven playing field for retail participants who access markets on a non-intermediated basis. The bankruptcy priority question must be resolved by statute, with retail DCO participants receiving priority protections comparable to those available to FCM customers. And the oversight question must be answered explicitly. Whether the front-line regulator is an SRO, the Commission itself, or a combination of both, the answer should be written into the statute rather than left to inference.
Vertical Integration and Conflicts of Interest
The NFA's letter also raises a point that tends to get less attention than the structural questions but deserves it. Conflicts of interest in vertically integrated DCM/DCO/FCM structures are a growing concern. There are currently ten registered FCMs with affiliated DCMs, many of which also have affiliated DCOs. Affiliated corporate structures are not new and are legally permissible under the current framework. But as vertical integration has expanded, so have the potential conflicts.
The most pointed concern involves designated self-regulatory organization (DSRO) responsibilities. A DCM that is also responsible for examining an affiliated FCM as its DSRO faces an obvious conflict. It may be more lenient with an affiliate than with an unrelated member. To their credit, no DCM with an affiliated FCM has sought to act as that affiliate's DSRO since the early 2000s. That restraint has been a matter of convention, though, not rule. The NFA recommends amending Regulation 1.52 to codify the prohibition. As vertical integration continues to grow in the industry, relying on voluntary restraint to hold that line is a risk the Commission should not accept.
Conclusion
Retail derivatives clearing organizations are a real and growing feature of the market. The regulatory framework was not built for them. The response to that mismatch should be structural and statutory, not a series of workarounds that leave customers in a legal gray zone.
The NFA's comment letter makes a compelling case for Congressional action to create a dedicated registration category for retail DCOs. The category should come with customer protections calibrated to the specific risks of direct, non-intermediated clearing, clear bankruptcy priority rules for retail participants, and an explicit answer to the oversight question. The CLARITY Act and DCIA show what that kind of targeted legislative response looks like in practice. Congress has the tools and, based on the bipartisan progress on digital asset legislation, the willingness to use them.
There is a broader interest at stake as well. The U.S. futures markets are among the most liquid and transparent trading markets in the world. That did not happen by accident. It is the product of decades of regulatory development that took market integrity seriously alongside investor protection. A framework for event contracts that addresses only the structural question of how retail participants access clearing, while leaving unresolved the rules governing insider trading and manipulation in those markets, would be incomplete. Event contracts present real manipulation risks. The information asymmetries that can arise around political, economic, and other contingent outcomes are not hypothetical, and the consequences of getting the regulatory response wrong extend well beyond any individual retail participant. Preserving the integrity of these markets requires that any new registration category come with rules calibrated to those risks from the outset, not layered on after problems emerge.
R Tamara de Silva is the managing attorney at De Silva Law Offices, LLC. The firm advises clients on financial regulatory matters, derivatives law, securities compliance, and complex commercial litigation. This article is for informational purposes only and does not constitute legal advice.