What about merge Securities and Commodities law in the digital age?

There are more exit scams than Satoshi has BTC. But the OG scam—isn’t a specific project. It’s the regulatory gap between securities and commodities that every big brain grifter exploits.

Introduction:

📚(Scroll down if you want to skip the fun and go directly full legalese)

Sup anons. If you've been around since the ICO days like me, you've seen more exit scams than Satoshi has BTC. But the OG scam—the one that keeps on giving—isn't any particular project. It's the regulatory gap between securities and commodities that every big brain grifter exploits.

The Boomer Divide That's Making Scammers Rich

Back in the stone age (aka the 1930s), boomers decided we needed two different cops for two different neighborhoods:

• SEC: Watches stonks and stuff that makes you an "investor"

• CFTC: Watches corn futures and stuff you can allegedly "take delivery" of

This made sense when trading meant calling some dude on a landline who had to physically run to different buildings to place your orders. Today? I can trade Tesla shares, ETH futures, wrapped-staked-[insert-20-adjectives]-tokens, and synthetic Venezuelan debt from the same app while taking a dump.

How to Scam, Grifter Edition

The entire crypto scam meta revolves around this regulatory divide. Here's the playbook that's made millionaires out of anons with cartoon avatars:

1. The "Not a Security" Speedrun

Step 1: Create a token that is 100% a security Step 2: Call it "utility token" or "governance token" or "protocol token" Step 3: Have your lawyer write a 50-page opinion explaining why it's not a security Step 4: Profit before regulators figure out which agency should be sending you a letter

BitConnect did it ("we're just selling software!"). Celsius did it ("it's not a security, it's a reward program!"). Every DAO that ever existed does it ("it's not investment, it's governance!").

By the time the SEC and CFTC finish playing rock-paper-scissors to decide who's in charge, the founders have already cashed out to non-extradition countries.

2. The Offshore Shuffle

Claim you're:

• Incorporated in the Caymans

• Operating from Dubai

• Banking in Switzerland

• Not serving US customers (wink)

When BitMEX ran this play, they made billions before the CFTC and DOJ could even coordinate which agency would bring charges. By then, it didn't matter – the $100M fine was just a cost of doing business.

3. The Category Shift

Start as:

• A lending platform (maybe CFTC?)

• Evolve into a DEX (probably SEC?)

• Add prediction markets (definitely CFTC...)

• Introduce NFTs (who tf knows?)

By constantly changing what you are, no regulator can pin you down. It's like playing musical chairs with enforcement agencies.

The Proof is in the Rug Pulls

Case Study: The Celsius Meltdown

Celsius took in $20 billion in customer funds by existing in regulatory limbo:

• Acted like a bank (banking regulators)

• Invested in securities (SEC territory)

• Traded futures (CFTC jurisdiction)

• Offered yield products (definitely securities)

Result? When they froze withdrawals, no regulator had clear jurisdiction. Customers lost billions, founders walked away rich.

Case Study: Do Kwon's Terra/Luna

When Terra/Luna imploded:

• The SEC claimed jurisdiction because Luna was a security

• The CFTC claimed jurisdiction because Terra was a commodity

• FinCEN got involved because of stablecoin concerns

While regulators fought over jurisdiction, Do Kwon went on the run with a $40 billion ecosystem in ruins.

Why This Makes Zero Sense in the Digital Age

The internet killed the distinction between securities and commodities:

1. Same Trading Experience: Whether I'm buying TSLA or ETH, it's the same app, same UX, same click

2. Same Scams: Pump-and-dumps, wash trading, and insider trading happen identically across all digital assets

3. Hybrid Assets: Is staked ETH a security or commodity? Is an NFT that generates yield a security? Is a stablecoin backed by T-bills a security?

4. Same Victims: The person losing money doesn't care which regulator was supposed to protect them

The Fix That Nobody Wants to Implement

We need one regulator for all digital assets. Full stop.

The EU is doing this with MiCA. Meanwhile, in the US, we're still trying to jam square tokens into round regulatory holes from the Great Depression era.

Until we fix this, the greatest trade in crypto will continue to be regulatory arbitrage. The real alpha was never trading—it was exploiting regulatory gaps while regulators argue about whose job it is to stop you.

Stay safe out there, anons. And remember: in a market with two cops who can't agree on their jurisdiction, there might as well be no cops at all.

------------------- < Fun Ended 📚

Now let's go full serious and talk in legalese:

The Case for Unified Asset Regulation: Why Securities and Commodities Regulators Should Merge

Introduction

The bifurcated regulatory regime governing financial markets in the United States and European Union represents a historical artifact rather than a rational response to modern market realities. The artificial distinction between securities and commodities—products that increasingly trade on similar platforms, through identical mechanisms, and are susceptible to the same forms of market manipulation and fraud—creates unnecessary regulatory complexity, jurisdictional conflicts, and enforcement gaps. This article argues that the convergence of trading mechanisms, particularly in the digital age, calls for a unified "asset regulation" framework that would enhance market integrity, improve regulatory efficiency, and better protect investors and consumers.

The internet has fundamentally transformed financial markets, democratizing access and homogenizing trading experiences. Whether purchasing shares in a technology company, futures contracts on wheat, or digital tokens representing various rights and interests, the average investor interacts with markets through virtually identical interfaces. The underlying legal distinctions between these asset classes, while historically significant, have become increasingly irrelevant to the mechanics of modern trading and the nature of contemporary market abuses. The emergence of cryptocurrencies and digital assets has further highlighted the inadequacy of the current regulatory paradigm, as these novel instruments often possess characteristics of both securities and commodities, leaving them in a contested regulatory space.

This article explores the legal frameworks governing securities and commodities in the United States and European Union, examines how internet trading has eroded meaningful distinctions between asset classes, analyzes patterns of fraud that transcend regulatory categories, highlights the regulatory challenges posed by cryptocurrencies, and ultimately argues for a unified approach to asset regulation.

I. The Current Regulatory Landscape

A. United States Regulatory Framework

The United States maintains a division between securities regulation, primarily overseen by the Securities and Exchange Commission (SEC), and commodities regulation, primarily handled by the Commodity Futures Trading Commission (CFTC). This bifurcation reflects historical developments rather than a deliberate regulatory design.

1. Securities Regulation

The foundation of U.S. securities regulation was established in response to the 1929 stock market crash and the Great Depression. The Securities Act of 1933 (the "1933 Act") and the Securities Exchange Act of 1934 (the "1934 Act") created a comprehensive framework focused primarily on disclosure, antifraud provisions, and registration requirements.

The 1933 Act regulates the initial issuance of securities, mandating registration and disclosure requirements for public offerings. Section 5 prohibits the offer or sale of securities without an effective registration statement or qualifying exemption. The definition of a "security" under Section 2(a)(1) is deliberately broad, encompassing traditional instruments like stocks and bonds, as well as more conceptual instruments like "investment contracts."

The U.S. Supreme Court, in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), established the seminal test for determining whether an investment scheme constitutes an "investment contract" and thus a security. Under the Howey test, an investment contract exists when there is: (1) an investment of money, (2) in a common enterprise, (3) with the reasonable expectation of profits, (4) derived primarily from the efforts of others. This flexible standard has been the cornerstone of U.S. securities regulation for over 75 years.

The 1934 Act establishes the SEC and regulates secondary market transactions. Section 10(b) and Rule 10b-5 promulgated thereunder prohibit fraud, manipulation, and deception in connection with the purchase or sale of securities. These provisions have been the primary vehicles for enforcement actions against a wide range of market misconduct.

2. Commodities Regulation

Commodities regulation in the United States has evolved significantly since the Grain Futures Act of 1922. The modern regulatory framework is primarily based on the Commodity Exchange Act of 1936 (CEA), as amended by various subsequent legislation, most notably the Commodity Futures Trading Commission Act of 1974, which established the CFTC, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The CEA's definition of "commodity" under 7 U.S.C. § 1a(9) has expanded dramatically over time. Originally focused on agricultural products, it now encompasses a vast array of goods and interests, including "all services, rights, and interests... in which contracts for future delivery are presently or in the future dealt in." This expansive definition potentially covers virtually any asset that could be the subject of a futures contract.

The CFTC has exclusive jurisdiction over futures contracts, options on futures, and swaps based on commodities. However, its jurisdiction sometimes overlaps with that of the SEC, particularly in the realm of security-based swaps and mixed swaps.

3. Jurisdictional Conflicts and Overlap

The expansion of both agencies' jurisdictional claims has created areas of significant overlap and potential conflict. These tensions became particularly apparent during the 2008 financial crisis, when over-the-counter derivatives—financial instruments that often possess characteristics of both securities and commodities—played a central role in market instability.

The Dodd-Frank Act attempted to address these jurisdictional issues by directing the SEC and CFTC to jointly regulate certain products and by establishing more explicit boundaries. However, the fundamental structural problem of dividing regulatory authority based on increasingly artificial distinctions between types of financial instruments remained unresolved.

Notable jurisdictional conflicts have arisen in cases like CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004), where the court held that certain foreign currency transactions were not "futures contracts" subject to CFTC regulation, and SEC v. Edwards, 540 U.S. 389 (2004), which expanded the application of the Howey test to schemes promising fixed returns. More recently, both agencies have claimed jurisdiction over various aspects of cryptocurrency markets, creating regulatory uncertainty.

B. European Union Regulatory Framework

The European Union has pursued a more integrated approach to financial regulation, though distinctions between securities and commodities regulation persist. The EU regulatory framework is structured around a series of directives and regulations that establish common standards across member states while allowing for some national variation in implementation.

1. Securities Regulation

The Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) form the cornerstone of securities regulation in the EU. These instruments establish comprehensive rules for investment services, regulated markets, and trading venues, covering a broad range of financial instruments.

MiFID II defines "financial instruments" in Annex I, Section C, encompassing transferable securities, money-market instruments, units in collective investment undertakings, various derivatives, and other instruments. This definition is similarly broad to the U.S. concept of "securities," though structured differently.

The Market Abuse Regulation (MAR) establishes a common framework for prohibiting insider dealing, unlawful disclosure of inside information, and market manipulation. Unlike the U.S. approach, which separates market abuse regulations between the SEC and CFTC based on the underlying asset, MAR applies a unified approach across different types of financial instruments.

The Prospectus Regulation governs the publication of prospectuses when securities are offered to the public or admitted to trading on a regulated market, serving a similar function to the registration requirements under the U.S. Securities Act.

2. Commodities Regulation

Commodities regulation in the EU is less distinctly separated from securities regulation than in the United States. The European Market Infrastructure Regulation (EMIR) establishes requirements for clearing and risk mitigation for over-the-counter (OTC) derivatives, including commodity derivatives.

The Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) establishes rules prohibiting market abuse in wholesale energy markets, creating a specialized regime for these commodity markets that parallels MAR.

3. Integrated Aspects of EU Regulation

While the EU maintains some distinction between securities and commodities regulation, its approach is more integrated than the U.S. system. MiFID II/MiFIR covers both securities and commodity derivatives within a unified framework. The European Securities and Markets Authority (ESMA) serves as the EU's securities regulator but also has responsibilities related to commodity derivatives markets.

This more integrated approach reduces, but does not eliminate, the jurisdictional conflicts that characterize the U.S. system. The EU framework demonstrates that a more unified regulatory approach is possible, though it still maintains certain distinctions based on asset class that may be increasingly anachronistic in the digital age.

II. Internet Trading and the Convergence of Asset Classes

A. Democratization of Access

The internet has fundamentally transformed financial markets by democratizing access. Prior to the digital revolution, securities trading was largely mediated by brokers, often requiring substantial minimum investments and generating significant transaction costs. Commodity futures trading was even more restricted, typically limited to specialized firms and professional traders due to margin requirements, specialized knowledge, and exchange membership rules.

Online trading platforms have dramatically lowered barriers to entry. Retail investors can now trade stocks, bonds, commodity futures, forex, and a host of other financial instruments through user-friendly interfaces with minimal capital requirements. Commission-free trading models have further reduced transaction costs, enabling broader market participation.

This democratization of access has rendered the regulatory distinction between securities and commodities increasingly irrelevant from the perspective of market participants. The average investor interacts with different asset classes through virtually identical interfaces and experiences.

B. Homogenization of Trading Mechanics

Beyond mere access, the mechanics of trading have converged across asset classes. Whether purchasing shares of a technology company or futures contracts on grain, the trading process is remarkably similar:

1. Account creation and verification (typically subject to KYC/AML requirements)

2. Deposit of funds

3. Selection of assets via a searchable interface

4. Execution of trades through similar order types (market, limit, stop)

5. Settlement and clearing processes

This convergence extends to more sophisticated trading strategies as well. Algorithmic trading, once the exclusive domain of specialized firms, has become accessible to retail investors across various asset classes through automated trading platforms and APIs. Similarly, derivatives and leverage are now commonly available for both securities and commodities.

The consequence of this homogenization is that the underlying legal distinctions between asset classes have become increasingly divorced from the practical reality of how these assets are traded. From the perspective of market participants, the distinction between purchasing shares in an S&P 500 ETF and E-mini S&P 500 futures contracts is minimal, despite these instruments being regulated by different agencies under different legal frameworks.

C. Cross-Asset Integration

Modern trading platforms increasingly offer cross-asset functionality, allowing investors to trade securities, commodities, currencies, and other instruments through a single interface. This integration reflects market demand for diversification and the recognition that artificial regulatory distinctions should not impede portfolio construction.

The rise of multi-asset investment products further blurs the lines. Exchange-traded funds (ETFs) may include stocks, bonds, and commodity futures within a single product. Structured products may incorporate elements of multiple asset classes. These hybrid instruments challenge the traditional regulatory paradigm by existing at the intersection of multiple regulatory frameworks.

III. Parallel Patterns of Fraud and Market Abuse

The convergence of trading mechanisms has been accompanied by a convergence in patterns of fraud and market abuse across different asset classes. The same techniques used to defraud securities investors are increasingly deployed in commodities markets and vice versa.

A. Common Fraud Schemes

Several types of fraud transcend the securities-commodities divide:

1. Pump-and-Dump Schemes: While traditionally associated with microcap securities, these schemes now commonly target commodity futures, forex, and cryptocurrencies. The mechanics remain consistent: artificially inflate the price of an asset through false statements and market manipulation, then sell holdings to unsuspecting buyers before the price collapses.

2. Ponzi and Pyramid Schemes: These fraudulent investment operations promise high returns but pay earlier investors with money from new investors rather than legitimate profits. Such schemes operate similarly whether purporting to invest in securities, commodity futures, forex, or cryptocurrencies.

3. Market Manipulation: Techniques such as spoofing (placing and quickly canceling orders to create false impressions of market activity), layering, and wash trading occur across all types of markets.

4. Misappropriation of Funds: The simple theft of customer funds by supposedly legitimate intermediaries occurs in both securities and commodities contexts.

5. Fraudulent Offerings: Whether styled as initial public offerings of securities, commodity pool interests, or initial coin offerings, fraudulent offerings share common characteristics: misleading disclosures, unrealistic promises, and misappropriation of investor funds.

B. Case Studies of Cross-Asset Fraud

1. Binary Options Fraud

Binary options—financial instruments that pay a fixed amount if certain conditions are met at expiration—exemplify the artificial nature of the securities-commodities divide. Depending on the underlying asset, binary options might be regulated by the SEC (if based on securities) or the CFTC (if based on commodities).

Fraudulent binary options schemes proliferated in the 2010s, using identical tactics regardless of whether the options were technically "securities" or "commodities." Typically operated through online platforms, these schemes employed aggressive marketing tactics, rigged outcomes, and refused to honor withdrawal requests.

Both the SEC and CFTC brought enforcement actions against binary options fraudsters, often for nearly identical misconduct. For example, in CFTC v. Vision Financial Partners, LLC, No. 13-cv-21155 (S.D. Fla. 2013), and SEC v. Banc de Binary Ltd., No. 13-cv-00993 (D. Nev. 2013), the agencies targeted similar misconduct in parallel proceedings.

2. Precious Metals Fraud

Precious metals fraud operates at the intersection of securities and commodities regulation. Some schemes involve the purported sale of physical metals (potentially a commodities transaction), while others involve securities representing interests in metals or metal-backed investments.

In CFTC v. Worth Group Inc., No. 13-cv-80796 (S.D. Fla. 2013), and SEC v. North American Coin & Currency, Ltd., 767 F. Supp. 1006 (D. Ariz. 1991), the courts addressed similar fraudulent precious metals schemes, applying different regulatory frameworks based on technical distinctions despite the fundamental similarity of the misconduct.

3. Foreign Exchange Fraud

Retail forex trading platforms have been fertile ground for fraud. While spot forex transactions generally fall under CFTC jurisdiction in the U.S., fraud schemes often incorporate elements potentially subject to SEC jurisdiction, such as pooled investment vehicles or securities-based swaps.

The result is a complex jurisdictional landscape that fraudsters exploit. In CFTC v. 1pool Ltd., No. 18-cv-2243 (D.D.C. 2018), and SEC v. 1pool Ltd., No. 18-cv-2244 (D.D.C. 2018), both agencies filed separate but coordinated actions against the same defendant for related misconduct involving Bitcoin-funded retail commodity transactions.

C. Regulatory Arbitrage and Enforcement Gaps

The division of regulatory authority creates opportunities for regulatory arbitrage—structuring transactions to fall under the jurisdiction of the perceived "friendlier" regulator or to exploit gaps between regulatory regimes.

In SEC v. Telegram Group Inc., 448 F. Supp. 3d 352 (S.D.N.Y. 2020), the court addressed an attempt to structure a digital asset offering to avoid securities regulation by separating the investment contract (the initial sale of rights to tokens) from the eventual delivery of the tokens themselves. Similar efforts to exploit the boundaries between regulatory frameworks are common across financial markets.

The fragmented regulatory landscape also creates enforcement gaps. When misconduct spans multiple asset classes, coordination between agencies is necessary but often imperfect. Despite memoranda of understanding between the SEC and CFTC, the agencies sometimes pursue inconsistent approaches to similar misconduct, create duplicative enforcement efforts, or leave certain aspects of cross-market schemes unaddressed.

IV. Cryptocurrency: The Ultimate Regulatory Challenge

Cryptocurrencies and digital assets represent the ultimate challenge to the traditional securities-commodities divide. These novel instruments often possess characteristics of multiple asset classes, creating significant regulatory uncertainty and jurisdictional conflicts.

A. The Securities-Commodities Dichotomy in Crypto Regulation

In the United States, both the SEC and CFTC have claimed jurisdiction over various aspects of cryptocurrency markets:

1. SEC Approach: The SEC has primarily relied on the Howey test to assert that many digital assets constitute "investment contracts" and thus securities. In a series of enforcement actions and public statements, the SEC has maintained that most initial coin offerings (ICOs) involve the sale of securities. In a landmark 2017 report on The DAO, the SEC concluded that tokens offered by the decentralized autonomous organization were securities under the Howey test. Subsequent enforcement actions against Kik Interactive, Telegram, and numerous other crypto firms have reinforced this position.

2. CFTC Approach: The CFTC has asserted that virtual currencies are "commodities" under the CEA. In CFTC v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018), and CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492 (D. Mass. 2018), federal courts confirmed the CFTC's position that cryptocurrencies are commodities subject to CFTC jurisdiction.

This overlapping jurisdiction creates significant regulatory uncertainty. A single digital asset might simultaneously be:

• A commodity subject to CFTC oversight

• A security subject to SEC registration and disclosure requirements

• A medium of exchange subject to FinCEN regulation as a money service business

• Property subject to IRS taxation guidelines

B. Judicial Interpretation and Regulatory Confusion

Courts have struggled to apply traditional securities and commodities frameworks to digital assets. In SEC v. Ripple Labs, Inc., No. 20-cv-10832 (S.D.N.Y.), the court considered whether the cryptocurrency XRP constitutes a security under the Howey test. The Ripple case highlighted the challenges of applying a 1946 test designed for citrus groves to modern digital assets with multiple functions and use cases.

In SEC v. LBRY, Inc., No. 21-cv-00260 (D.N.H. 2022), the court found that LBRY Credits were investment contracts despite having utility functions, while in Audet v. Fraser, 332 F.R.D. 53 (D. Conn. 2019), the court concluded that certain "hashlets" (units of computing power for cryptocurrency mining) were not securities.

The classification of a digital asset may change over time as it becomes more or less decentralized, creating further regulatory complexity. SEC officials have suggested that Ethereum, while possibly having been issued as a security, may have evolved to become something other than a security—a concept dubbed "sufficient decentralization" that lacks clear statutory basis.

C. Enforcement Challenges and Market Harms

The regulatory uncertainty surrounding cryptocurrencies has contributed to significant market abuses. The ICO boom of 2017-2018 saw numerous fraudulent offerings that exploited the unclear regulatory status of digital assets. According to a 2018 study by the ICO advisory firm Satis Group, approximately 78% of ICOs were identified as scams.

Both the SEC and CFTC have brought enforcement actions against cryptocurrency fraud and manipulation, but their efforts have been hampered by jurisdictional uncertainty and the global, decentralized nature of cryptocurrency markets. The absence of a coherent regulatory framework has allowed significant misconduct to flourish, harming investors and undermining market integrity.

D. EU Approach: Markets in Crypto-Assets (MiCA)

The European Union has taken a more unified approach to cryptocurrency regulation with the Markets in Crypto-Assets (MiCA) Regulation. MiCA establishes a comprehensive framework for regulating crypto-assets that fall outside existing EU financial services legislation.

Rather than forcing cryptocurrencies into existing categories of securities or commodities, MiCA creates specialized categories for different types of crypto-assets:

• Asset-referenced tokens (stablecoins referencing multiple currencies, commodities, or other assets)

• E-money tokens (stablecoins referencing a single fiat currency)

• Utility tokens (providing access to a service)

• Other crypto-assets (including Bitcoin and similar cryptocurrencies)

This approach recognizes the unique characteristics of digital assets and avoids many of the jurisdictional conflicts that characterize the U.S. approach. By establishing a unified framework administered by a single set of regulators, MiCA potentially offers greater regulatory clarity and market stability.

V. The Case for Unified Asset Regulation

The convergence of trading mechanics, patterns of fraud, and the challenges posed by new asset classes like cryptocurrencies make a compelling case for unified asset regulation. A consolidated regulatory framework would better reflect market realities, enhance regulatory efficiency, and improve investor protection.

A. Regulatory Efficiency and Expertise

A unified asset regulator would eliminate duplicative functions and jurisdictional conflicts. Currently, both the SEC and CFTC maintain separate:

• Enforcement divisions

• Market surveillance systems

• Registration and disclosure regimes

• Rulemaking processes

• Administrative tribunals

This duplication is inefficient and wasteful. A single regulator could achieve economies of scale and develop comprehensive expertise across all asset classes, rather than maintaining artificial distinctions that no longer reflect market realities.

The CFTC and SEC already coordinate closely on many issues through memoranda of understanding, joint rulemakings required by Dodd-Frank, and cross-agency task forces. This coordination itself consumes resources that could be better deployed in a unified structure.

B. Consistent Approach to Market Conduct

A unified regulator could apply consistent principles to similar misconduct across all markets. Currently, virtually identical forms of market manipulation may be subject to different standards, procedures, and penalties depending on whether they occur in securities or commodities markets.

For example, insider trading is subject to well-developed judicial doctrine under Section 10(b) of the Exchange Act and Rule 10b-5 in securities markets. In commodities markets, insider trading was only explicitly prohibited by statute in 2010 with the Dodd-Frank Act's addition of Section 6(c)(1) to the CEA, and the jurisprudence remains less developed.

Similarly, disclosure obligations vary significantly between securities offerings and commodity pool offerings, despite both involving investments by the public. A unified framework could establish consistent disclosure standards based on the nature and risks of the investment rather than its technical legal classification.

C. Eliminating Regulatory Arbitrage

A unified regulatory framework would eliminate opportunities for regulatory arbitrage. Market participants would no longer have incentives to structure transactions to fall under the jurisdiction of the perceived "friendlier" regulator or to exploit gaps between regulatory regimes.

In the cryptocurrency space, promoters often engage in elaborate efforts to characterize their tokens as "utility tokens" rather than securities to avoid SEC registration requirements. Similarly, complex financial instruments may be structured to minimize regulatory oversight by falling into jurisdictional gaps.

A unified regulator would be able to focus on the economic substance of transactions rather than their formal legal classification, reducing opportunities for evasion.

D. International Regulatory Coordination

Financial markets are increasingly global, requiring effective international regulatory coordination. A fragmented domestic regulatory structure complicates international harmonization efforts.

The European Union, with its more integrated approach through MiFID II/MiFIR and MiCA, presents a more coherent regulatory face in international forums. A unified U.S. asset regulator would be better positioned to engage with international counterparts and promote consistent global standards.

E. Proposed Structure: The Asset Markets Authority

Drawing on the analysis above, this article proposes the creation of a unified Asset Markets Authority (AMA) that would consolidate the functions of the SEC and CFTC. The AMA would be structured around functional regulation rather than product-based regulation, with divisions focusing on:

1. Market Integrity: Surveillance, manipulation prevention, and enforcement across all asset markets.

2. Issuer Disclosure: Registration and ongoing disclosure requirements for all public offerings of investment products, regardless of their technical classification.

3. Market Infrastructure: Oversight of exchanges, clearing agencies, trade repositories, and other market utilities across all asset classes.

4. Intermediary Supervision: Regulation of brokers, dealers, advisers, and other intermediaries in all markets.

5. Investor Protection: Education, outreach, and targeted interventions to protect retail investors and consumers across all markets.

This structure would eliminate the artificial distinction between securities and commodities while preserving and enhancing specialized expertise in different market functions.

The AMA would apply a unified set of principles to all asset markets:

• Transparency and disclosure

• Fair and orderly markets

• Prevention of fraud and manipulation

• Systemic risk mitigation

• Consumer and investor protection

These principles would be applied through a flexible, principles-based regulatory approach that could adapt to evolving market conditions and new asset classes without requiring continual legislative intervention.

VI. Addressing Counterarguments

Proposals for regulatory consolidation inevitably face opposition. This section addresses the primary counterarguments against a unified asset regulator.

A. Loss of Specialized Expertise

Critics may contend that consolidation would dilute the specialized expertise of the SEC in securities markets and the CFTC in derivatives and commodities markets. However, this concern misconceives the nature of modern financial regulation.

The expertise required to oversee trading in IBM stock is not fundamentally different from that needed to oversee trading in wheat futures. Both require understanding of market microstructure, order types, clearing and settlement processes, and manipulation techniques. Modern financial regulators already employ experts in statistics, data science, market analysis, and law who could easily apply their skills across asset classes.

Moreover, a unified regulator could maintain specialized divisions while eliminating duplicative functions and jurisdictional conflicts. The proposed functional structure would preserve and enhance specialized expertise while improving regulatory coherence.

B. Political Feasibility

The most significant obstacle to regulatory consolidation is political rather than substantive. The SEC and CFTC are overseen by different congressional committees:

• The SEC reports to the Senate Banking Committee and the House Financial Services Committee

• The CFTC reports to the Senate and House Agriculture Committees

This committee jurisdiction creates powerful institutional resistance to consolidation, as it would require committees to cede oversight authority. Additionally, regulated entities that have established relationships with one regulator may resist being brought under a new regulatory structure.

However, political feasibility should not be confused with policy desirability. The current structure is a historical accident rather than a rational regulatory design, and its costs in terms of regulatory efficiency, market integrity, and investor protection are substantial.

C. Transition Disruption

Consolidating two major regulatory agencies would undoubtedly create transition challenges. Regulated entities would need to adapt to new regulatory structures, reporting requirements, and supervisory relationships.

These transition costs, however, should be weighed against the long-term benefits of a more coherent regulatory framework. A carefully planned transition with appropriate phase-in periods could mitigate disruption while moving toward a more effective regulatory structure.

D. Regulatory Competition as a Check on Overreach

Some advocates of the current fragmented system argue that regulatory competition between the SEC and CFTC serves as a check on regulatory overreach. By this logic, the existence of multiple regulators with overlapping jurisdiction constrains each agency's ability to impose excessively burdensome regulation.

This argument fails to account for the significant costs of jurisdictional uncertainty, regulatory arbitrage, and enforcement gaps. Moreover, meaningful checks on regulatory authority can be established through robust judicial review, congressional oversight, and internal structural safeguards within a unified regulator.

VII. Conclusion

The distinction between securities and commodities regulation, while historically grounded, has become increasingly anachronistic in the digital age. Internet trading has homogenized trading experiences across asset classes, patterns of fraud transcend regulatory categories, and new assets like cryptocurrencies defy traditional classification.

The current bifurcated regulatory structure imposes significant costs: duplicative functions, jurisdictional conflicts, enforcement gaps, and opportunities for regulatory arbitrage. These costs are ultimately borne by investors, consumers, and the broader economy.

A unified asset regulator would better reflect market realities, enhance regulatory efficiency, improve investor protection, and position the United States to engage more effectively in international regulatory coordination. While political obstacles to consolidation are substantial, they reflect institutional inertia rather than sound policy considerations.

As financial markets continue to evolve and converge, the case for unified asset regulation will only grow stronger. The time has come to move beyond historical accidents and toward a regulatory framework designed for the realities of modern financial markets.