The Desk: August Edition

There are roughly thirty more days until football season kicks off (Roll Tide!). This year I (all of us!) get to watch football and be thinking about price discovery at the same time. Meanwhile, the NCAA recently submitted testimony to the House Agriculture Committee that greater oversight of prediction markets is needed.

In this month’s edition we look back at recent CFTC enforcement action right here in North Carolina, ICE Futures’ disciplinary actions, the Clarity Act, commodity perpetual contracts, new margin rules, event contract updates, and the death of large trader reporting.

You can listen to us discuss these matters on the podcast at Apple Podcasts or Spotify. Enjoy.

Enforcement Round-Up

Key Takeaways:

• Fraud-based misconduct, including for commodity pools, remains an enforcement priority for the CFTC.
• Exchange enforcement remains active even in a more measured federal enforcement environment.

CFTC Charges North Carolina Commodity Pool Operator and His Company with Fraud

What happened. On July 7, 2026, the CFTC announced a complaint against Trevor L. Vernon and his company Argent Capital Management LLC (ACM), based in Franklin, NC, which was filed in the U.S. District Court for the Western District of North Carolina. The complaint alleges that, from at least March 2022 through February 2026, the defendants fraudulently solicited more than $14 million from at least 60 participants to invest in a commodity pool operated by ACM. The pool allegedly traded equity index futures contracts, options on equity index futures, crypto assets, and other investments.

Key Allegations.  The CFTC alleges that the defendants sent participants false monthly and quarterly performance reports showing inflated results while the trading activity allegedly generated consistent and catastrophic losses.  The CFTC further alleges that the defendants misappropriated pool funds in a Ponzi-like scheme, that Vernon made false statements in sworn testimony during the Commission’s investigation, and that the defendants violated multiple registration provisions under the Commodity Exchange Act (CEA) and CFTC regulations. The CFTC seeks restitution, disgorgement, civil monetary penalties, trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.

Practical takeaway. This case serves a reminder to evaluate controls around investor solicitation, performance reporting, fund flows, registration status, and escalation of potential red flags. Firms should also ensure that marketing materials, investor updates, and internal records are supportable and consistent with actual trading performance.

ICE Futures Enforcement Update

What happened. On July 16, 2026, ICE Futures U.S. issued separate disciplinary notices settling charges against three firms: (1) GFI Securities Ltd.; (2) Marex MENA Ltd.; and (3) Mulvaney Capital Management, Ltd.  Each action involved alleged violations of Exchange rules, including rules governing block trading, order record requirements, position limits, and supervisory obligations.

Why it matters.  Notably, each action included an alleged violation of ICE’s supervisory obligations rule, which requires registered firms to establish, administer, and enforce supervisory systems, policies, and procedures reasonably designed to ensure compliance with Exchange rules based on the nature and scope of the firm’s exchange-related activities. The firms agreed to pay monetary penalties ranging from $50,000 to $110,000, and Mulvaney also agreed to disgorge more than $430,000 in alleged benefits associated with the conduct at issue.

Practical takeaway.  These actions underscore that exchanges remain active frontline regulators.  Even where the underlying conduct does not involve fraud, manipulation, or other high-profile misconduct, exchanges continue to pursue disciplinary actions involving supervisory, recordkeeping, reporting, and other compliance-related violations.

Market participants should not assume that a more measured federal enforcement environment translates into reduced regulatory risk at the exchange level. Firms should review their supervisory procedures, recordkeeping practices, position limit controls, and trade documentation processes to confirm they are appropriately designed, implemented, tested, and documented.

Tiffany Payne and Nader Raja | Email

Clarity Act

In the span of one week Bloomberg reported that the Clarity Act is at the “1-yard line” to “facing longer odds” despite the recent push. Reportedly, the scope of the ethics provisions and loopholes within the bill are the cause for the current slowdown. In particular, the current draft of the bill will ban senior government officials (including the President) from having direct ties to the crypto industry. Reports are that President Trump’s business dealings in crypto have netted him more than $1 billion, including $635 million tied to the $TRUMP memecoin and more than $500 million from his World Liberty Financial crypto firm. Untangling those connections to comply with the bill could take some further work.

The Senate begins its recess shortly after August 6^th and when they come back it’s full speed ahead for the mid-terms, it’s likely (and predicted) that if the Clarity Act does not make it to a vote in the Senate before the recess, it’s unlikely to see any movement until after the midterms. One thing is for sure: the Clarity Act is one resilient piece of legislation. It will pass, but when and the form are still unclear.

Barrett Morris | Email 

Perps, Perps, Perps

Perpetual Futures are increasingly becoming the “thing” of the derivatives world for the second half of the year and build off a lot of the work that occurred surrounding digital assets last year. Event contracts had the first half of the year, no question. Perpetual futures (maybe swaps) are contracts that have no expiration dates or physical delivery, settle in cash, and can be traded outside of traditional trading hours.

In May of this year, the CFTC approved Kalshi’s request to offer perpetual contracts that reference the spot price of bitcoin as a futures contract. Then the CME sued the CFTC over letting Kalshi and Coinbase offer perpetual futures, arguing that the contracts are swaps under the Dodd-Frank Act and not futures contracts.

And now Kalshi is coming for commodities. Participants located outside the United States can already trade some of these products via Hyperliquid, a trading platform that operates 24/7 and lists a variety of contracts including on West Texas Intermediate and Brent Crude oil, contracts have become very popular in consideration of the ongoing tension in the middle east.

On July 21, Kalshi filed a number of requests for Commission Approval under Commission Regulation 40.3 to list commodity related perpetual futures. Here’s a link to “PLATINUMPERP” (there are also filings for gold and silver). Unlike listing a product by certification, the 40.3 rules provide a 45-day review period from the filing date (unless extended by the CFTC), after which Kalshi will be permitted to trade these commodity related perpetual futures.

If Kalshi gets approval (non-objection) from the CFTC to trade commodity related perpetual futures, does the CME amend their complaint? We could be entering a brave new world of 24/7 (Kalshi’s proposed commodity perps are 24/5) trading and price discovery for certain “TradFi” commodity assets on September 4.

Barrett Morris | Email

New Margin Rules!

We got new-ish margin rules in July! On July 13, 2026, the Commission approved a final rule amending the Part 23 margin requirements for uncleared swaps. Let’s walk through the updates:

Creation of an Eligible Seeded Fund (“ESF”) Exception

This might be the most exciting of the updates and could play into the future digitalization and tokenization of collateral.

An Eligible Seeded Fund is essentially a collective investment vehicle seeded with parent/affiliate capital (think sponsor-seeded ETF), but specifically it is a collective investment vehicle that receives all or part of its start-up capital from a parent and/or affiliate where the ESF:

1. is a distinct legal entity from the parent/affiliate;
2. is managed by an asset manager, pursuant to an agreement that prescribes an investment strategy;
3. asset manager has management independence and investment discretion; including, (if applicable) independent fiduciary duties to the fund and investors in the fund;
4. is not collateralized, guaranteed, or otherwise supported (directly or indirectly) by any parent/affiliate, margin affiliate, other collective investment vehicle, or the ESF’s asset manager;
5. has not received any assets (directly or indirectly) from another ESF that relied on the Eligible seeded fund exception under the new definition of “Margin Affiliate”; and
6. is not a securitization vehicle.

The exception to the definition of Margin Affiliate excludes ESFs for purposes of calculating the fund’s material swaps exposure and the initial margin threshold for a period of up to three years after the fund’s trading inception date, regardless of consolidated financial reporting.

Eligible Collateral Amendment – Removal of the Asset Transfer Restriction

CFTC margin rules disqualified securities of money market and similar funds that transfer their assets through repurchase or similar arrangements due to concerns that the impact of the transfers could impair the liquidity and value of fund securities during times of stress.

Under the final rule, the CFTC is rolling that disqualification back so long as the collateral at issue are money market and similar funds that invest only in securities issued or unconditionally guaranteed by the U.S. Department of the Treasury, the European Central Bank or central other sovereign entities, and cash.

Haircuts

After more than a decade following the original margin rules, the CFTC wanted to clean up the Standardized Haircut Schedule in 17 CFR 23.156(a)(3)(i)(B), noting that a footnote to set forth the haircut on money market and similar funds that was “inadvertently omitted” when the rule originally was finalized. Someone at the CFTC has been reading “Extreme Ownership” by Jocko Willink (great book).

To resolve the issue, the CFTC is adopting specific percentage haircuts for shares of redeemable investment funds that are eligible margin collateral. Covered Swap Entities will be required to haircut the market value of securities by 0.5%, 2%, or 4% depending on the remaining maturity of the security.

Barrett Morris and Stuart Armstrong | Email

CFTC Advisory on Self-Certification of an Event Contract Series

On July 24, three days before the comment deadline for the CFTC’s proposed rule amendments governing prediction markets, the CFTC Division of Market Oversight reminded DCMs that they may only submit a class (or broad) self-certification only if each swap within the certified class:

1. Based on an excluded commodity in 17 CFR 40.2(d)(1);
2. Has identical pricing source, formula, procedure, and methodology for calculating reference prices and payment obligations’
3. The info in #2 has already been submitted to the CFTC and certified under 17 CFR 40.2 or approved pursuant to 40.3; and
4. Based on an excluded commodity involving an identical currency or identical currencies.

The letter to DCMs was issued upon the CFTC observing many DCMs self-certifying event contracts using “Broad Template Certifications” pursuant to 40.2(a) instead of individually certifying each version. The CFTC previously raised concerns on this practice in Staff Letter No. 26-08. The letter draws on the hype following the World Cup and the controversy of sports related event contracts by using an event contract regarding soccer (or futbol).

Barrett Morris | Email

Sunset of Part 20 Large Trader Reporting

In a previous edition of The Desk we mentioned that Chairman Selig alluded to a sunsetting of Part 20 Swaps Large Trader Reporting requirements in his ISDA AGM remarks. That Commission priority has become a reality. On July 17, 2026 the CFTC issued a final order sunsetting the routine position-reporting requirements of Part 20 noting that the order “relieves industry of a significant and unnecessary burden while ensuring the Commission retains full access to the position information it needs to protect these markets.” While Part 20 reporting is being sunset, the Commission retained the recordkeeping and special-call requirements of §§ 20.6 and 20.5(b), together with the definitions in § 20.1, the list of covered contracts in § 20.2, the delegations in § 20.8 pertaining to those provisions, and the futures-equivalency guidance in Appendix A.

Part 20 was adopted with a sunset provision, in section 20.9, that provides that it would become ineffective and unenforceable upon a Commission finding that SDRs collect data that enables the Commission effectively surveil paired swaps and swaptions trading and markets. The Commission Order comes after approximately 13 years of swap data collection by SDRs and numerous refinements to the SDR reporting regime.

However, the burden is not fully lifted, as the Commission is retaining the recordkeeping and special-call provisions of Part 20, described as a transitional measure, such that reporting entities must continue to keep records of their paired swap and swaption transactions and futures-equivalent conversion methods and furnish them upon a special call (futures equivalency often being viewed as the more challenging aspect of Part 20 in interpretation and operationalization).

This means that market participants are still required to maintain books and records in accordance with Commission Regulation 20.6, including tracking where they have positions equal to or greater than 50 gross all-months-combined futures equivalent positions in paired swaps or swaptions on the same commodity and will still be required to complete a Form 40 upon a special-call.

Stuart Armstrong and Barrett Morris | Email

Industry Reaction to Prediction Market Insider Trading Cases

What happened. As we previously reported, in the first half of 2026, the Department of Justice (DOJ) and the CFTC brought two parallel, first-of-their-kind insider trading actions targeting prediction market activity: (1) the April 2026 Van Dyke case involving an Army service member who allegedly traded Polymarket contracts on classified information about a military operation, and (2) the May 2026 Spagnuolo case involving a Google engineer who allegedly traded Polymarket contracts on confidential corporate data. Together, these cases show that the DOJ and the CFTC are prepared to pursue coordinated criminal and civil charges under a misappropriation theory where event-contract trading allegedly involves material non-public information (MNPI) obtained in breach of a duty of trust and confidentiality.  Under these actions, the government has targeted the misuse of both government and corporate information in event-contract trading, and showcased its view on the extraterritorial reach of the Commodity Exchange Act.

Industry Response. While these insider trading cases have not been decided, firms across the industry are already taking notice. Financial institutions routinely handle information that can affect markets, and prediction platforms such as Kalshi and Polymarket increasingly offer contracts tied to financial, macroeconomic, geopolitical, and company-specific outcomes. That combination can blur the line between entertainment-oriented event trading and market-sensitive speculation. Publicly reported policy updates reflect a range of approaches, from targeted restrictions on certain contract categories to broader bans on personal-account prediction market trading.

Practical takeaway.  Firms considering policy updates should treat prediction market activity as part of their broader insider trading, confidentiality, personal trading, surveillance, and financial-crimes compliance framework. Depending on the firm’s risk profile, appropriate controls may include:

• Assess firm risk and scope policies accordingly. The range of approaches taken by the firms above shows that this is not a one-size-fits-all exercise; each firm should calibrate its policy to its own business model, client base, and MNPI exposure. Firms should also confirm that existing insider trading, confidentiality, and personal-trading policies are broad enough to capture event-contract trading, and that appropriate guardrails apply where information is subject to a non-disclosure agreement or other confidentiality protections.
• Require account disclosure and pre-clearance. Consider mandating disclosure of prediction market and online wagering accounts if not already captured in the firm’s systems and procedures, and evaluate whether pre-clearance should be required.
• Apply policies globally, given the government’s assertion of extraterritorial reach in Spagnuolo.
• Calibrate surveillance and SAR analysis. Identify red flags such as outsized or perfectly timed profits and crypto-funded flows lacking economic purpose, and evaluate suspicious activity report (SAR) filing where activity implicates MNPI or potential fraud or money laundering.
• Expand training and revisit restricted lists to reflect the broader universe of potential “insiders” and strengthen data-access controls.