Protocols & Policy · Regulation
In remarks at the CFTC's first Frontier Forum on Oct. 28, Chairman Michael S. Selig asked who registers, who is liable and who regulators can see when autonomous software trades crypto and derivatives. He proposed no rule.
The top U.S. derivatives regulator wants to know who an AI trading agent works for. In remarks on Oct. 28 at the CFTC's first Frontier Forum, Chairman Michael S. Selig asked whether markets need "a new flavor of know-your-customer, maybe KYA or know-your-agent," as autonomous software starts to trade crypto and derivatives for users [1].
Know-your-customer, or KYC, is the identity check a broker or exchange runs before it opens an account. Selig's question is what that check looks like when the account holder hands the trading to a program. These were remarks, not a rule or a proposal, and Selig said the views were his own as Chairman and "don't necessarily reflect those of the Commission" [1].
The CFTC's rulebook, Selig said, "was developed around identifiable market participants, intermediaries, and institutions performing specific financial functions" [1]. An agent that finds trades and executes them for a user does not fit that frame neatly. He put three questions on the record: "Does the developer of that agent become subject to registration? Who is liable if the agent goes rogue? How can regulators know who the agent, or suite of agents, is trading on behalf of?" [1]
Each one lands on a different party. Registration falls on developers, who could end up treated like brokers or advisers. Liability falls on whoever is left holding a bad trade. Visibility falls on venues and the CFTC itself, which rely on knowing the beneficial owner behind an order.
Why now: Selig said individuals are "increasingly giving the credentials to their brokerage and bank accounts to their SI agent," and that blockchains let agents "custody and trade crypto assets without relying on banks, brokerages, or other traditional intermediaries" [1]. SI is his term, "super intelligence," for what most people call AI.
Selig did not answer his own questions. He gave a yardstick: the approach "must remain grounded in the functions performed, the control exercised, and the economic realities of the transaction" [1]. He tied this to crypto, where developers for years faced doubt over whether "publishing code or developing user interfaces" triggered intermediary rules [1].
Le Coin's view: that framing points toward control as the dividing line. A developer who ships code a user runs alone looks different from one who keeps the keys and steers the trades. That reading is ours; the speech does not say where the line falls.
The CFTC has tried this before. After the May 2010 Flash Crash and Knight Capital's runaway algorithm in August 2012, it proposed Regulation Automated Trading, published Dec. 17, 2015, with risk controls for algorithmic firms [1]. Selig noted the Commission "never finalized" it and called it ill-suited for today [1]. Eleven years on, the agency is back at the question with a broader population: tools that once needed a trading desk now sit on personal devices.
He also named the risks. Agents "may respond to market conditions in unexpected ways," systems "relying on similar models may generate correlated trading behavior," and their speed may strain surveillance [1]. Correlated behavior means many agents built on the same model selling at once, a market-structure worry no single firm can control.
The case against reading much into this is simple. Opening remarks at a forum set no agenda on their own, and the Commission's last rule on automated trading never made it past proposal. Selig also spent much of the speech on opportunity, saying the agency's own staff already use SI to police markets, and on compute derivatives, where he said more than 100 commenters answered a CFTC request for comment [1]. That is where the agency's formal process is already moving.
The acronym does not matter yet. KYA has no definition, no text and no timeline.
The signal to watch is paper. A request for comment, a staff advisory or a no-action letter that names agent developers, registration or beneficial-owner disclosure for automated accounts would turn a question into a process. The forum's second panel on Oct. 28 was set to examine agentic trading, per Selig's remarks, and any CFTC follow-up on that panel is the next dated item to check [1][2].
For now this is a speech: three open questions, one yardstick, and no rule.
Holding the Corner.
Not financial advice.