Trump Signs Executive Order Directing the DOL and SEC to Facilitate 401(k) Plan Access to Alternative Assets
On August 7, 2025, President Trump signed an executive order entitled “Democratizing Access to Alternative Assets for 401(k) Investors” (the “Executive Order”), which directs the Department of Labor (the “DOL”) and the Securities Exchange Commission (the “SEC”) to relieve regulatory burdens and litigation risk that impede investments in alternative assets (including crypto, private equity, private credit and real estate) by 401(k) and other defined contribution plan (collectively, “DC Plans”) participants. The Executive Order states that more than 90 million Americans participate in employer-sponsored DC Plans, but most of those are currently restricted from investing in alternative assets, unlike “wealthy investors” and participants in public retirement plans.
The $12.5 trillion of assets held in DC Plans has long been a target for alternative asset managers. Likewise, many DC Plan participants and sponsors have advocated for better access to such investments to enhance growth and diversification opportunities. On the other hand, detractors cite higher costs, increased complexity and lack of transparency and liquidity as reasons to restrict access to alternative assets. Although such investments are not (and have never been) per se prohibited for DC Plans under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), concerns about litigation risk (class actions alleging that it was imprudent to offer alternative investments) for plan fiduciaries, as well as securities law and other regulatory hurdles, have effectively kept such investments from becoming mainstream in DC Plan investment option lineups.
Background
On June 3, 2020, during the first Trump administration, the DOL published an Information Letter confirming that investment options under a DC Plan may include a limited allocation to private equity (the “2020 Letter”, discussed here). Notably, the 2020 Letter did not discuss direct investment in private equity funds (for example, by adding a private equity fund to the plan’s investment lineup). Rather, the 2020 Letter discussed including private equity as a small allocation (no more than 15%) within a diversified investment option such as a balanced fund or a target date fund.
Although the 2020 Letter led to some optimism for proponents of alternative assets in DC Plans, a subsequent Supplemental Statement (issued on December 21, 2021, during the Biden administration and discussed here) urged more caution. The Supplemental Statement emphasized that the DOL “did not endorse or recommend” offering designated investment alternatives with private equity components in the 2020 Letter, and that it wanted “to ensure that plan fiduciaries do not expose plan participants and beneficiaries to unwarranted risks by misreading” the 2020 Letter as saying that these investments are “generally appropriate for a typical 401(k) plan.”
Importantly, the 2020 Letter did not provide any kind of safe harbor for including alternative assets in 401(k) plan investment options, and the Supplement Statement did not prohibit such investments. The guidance simply provided that limited private equity allocations within a DC Plan investment option are permitted, but that rigorous analysis is critical when evaluating the prudence of such investments given their complexity.
The Executive Order
The Executive Order directs the DOL, within 180 days, to reexamine its guidance regarding an ERISA fiduciary’s duties in connection with making available to DC Plan participants an asset allocation fund that includes investments in alternative assets (including consideration of recission of the Supplemental Statement). For this purpose, “alternative assets” include not only private equity, private credit, real estate, and other asset classes that are not publicly traded, but also commodities and digital assets.[1]
The Executive Order also directs the DOL within such 180-day period, as it deems appropriate and consistent with applicable law, to seek to clarify its position and propose guidance on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets. The Executive Order says the guidance may include appropriately calibrated safe harbors and directs the DOL to prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their best judgment in allowing alternative investments for DC Plan participants.
The DOL is further directed to consult with the Secretary of the Treasury, the SEC, and other Federal regulators as necessary. Similarly, the SEC is directed to consider ways to facilitate access to alternative investments, including potential revisions to existing rules relating to accredited investor and qualified purchaser status, which are currently hurdles to direct investments in alternative assets by most DC Plan participants.
Key Takeaways
While the 2020 Letter focused only on permitting investments in diversified investment options that included a small allocation to private equity, the Executive Order picks up a much broader range of assets, including cryptocurrency and other digital assets (furthering the DOL’s recent rescission of its 2022 guidance that cautioned against investment in cryptocurrencies, discussed here) and does not suggest a cap on a fund’s allocation to alternative assets.
The Executive Order does not by itself change any existing rules or guidance. Rather it is a directive for agencies to revisit their guidance and to issue new guidance as they determine to be appropriate to achieve the policies described in the Executive Order. It remains to be seen whether the DOL, SEC or other Federal regulators will issue new guidance and what such guidance will say. While the Executive Order strikes an encouraging tone, its ultimate impact is yet to be seen. However, those wishing to allow these offerings have reason for optimism that they could become more common if, for example, the Federal regulators institute some type of safe harbor – a possibility suggested by the Executive Order.
We are monitoring developments and will update as warranted.
[1] For purposes of the Executive Order, the term “alternative assets” means: (i) private market investments, including direct and indirect interests in equity, debt, or other financial instruments that are not traded on public exchanges, including those where the managers of such investments, if applicable, seek to take an active role in the management of such companies; (ii) direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate; (iii) holdings in actively managed investment vehicles that are investing in digital assets; (iv) direct and indirect investments in commodities; (v) direct and indirect interests in projects financing infrastructure development; and (vi) lifetime income investment strategies including longevity risk-sharing pools.
United States: US$12.2 Trillion Opportunity–Executive Order Paves the Way for Easier 401(k) Plan Access to Alternative Investments
On 7 August 2025, President Trump signed an executive order intended to modernize the 401(k) investment universe, directing the Secretary of Labor to clarify the US Department of Labor’s (DOL) position on fiduciary duties in connection with offering products containing exposure to alternative assets to defined contribution plans, such as 401(k) plans, potentially establishing “appropriately calibrated safe harbors” for such investments. The order also directs the Securities and Exchange Commission (SEC) to ease access to alternative assets for such plans by revisiting applicable regulations and guidance, including that related to accredited investor and qualified purchaser status.
Because of fiduciary liability concerns, as well as various legal and operational issues, 401(k) plan fiduciaries have been reluctant to include products containing exposure to alternative investments in plans’ investment lineups. The order specifically directs the Labor Secretary to prioritize actions that may curb litigation that “constrains fiduciaries’ ability to apply their best judgment in offering investment opportunities to plan participants.” If the DOL issues a formal regulation establishing a “safe harbor” intended to provide protection for plan fiduciaries when selecting investment products with an alternatives component, plan fiduciaries should have an easier time providing alternatives exposure to plan participants.
The executive order–and DOL and SEC guidance and rulemaking that will follow–marks a pivotal moment for private equity sponsors and other managers of alternative investments, including private real estate, infrastructure, and credit who have long sought ways to access the 401(k) plan market. The growing surge in product development of retirement solutions with private market exposure, such as custom target date funds and managed accounts with private equity and private credit exposures, shows no signs of slowing down.
Tokenization of Real-World Assets: Opportunities, Challenges and the Path Ahead
Digital assets are no longer just the playground of fintech startups. Mainstream financial institutions now offer token-friendly custody and settlement, global exchanges are piloting digital-asset divisions, and traditional asset managers are dipping their toes into tokenized share classes. For established players, the appeal is clear: smoother operations, faster settlements and a bigger pool of potential investors.
Tokenization of real-world assets (RWA) is the process of representing rights in an asset through a cryptographically secured digital token recorded on a distributed ledger. In plain English: RWA tokenization uses blockchain technology (like a spreadsheet in the cloud that no one can secretly edit) to buy, sell, track and hold digital versions of RWA – from real estate and works of art to financial instruments, including investment fund interests.
The RWA tokenization market reached $24 billion in size this year, growing 308 percent in three years, and could reach up to $30 trillion by 2034.1 This growth appears primed to accelerate as mainstream financial institutions increasingly adopt the technology and identify genuine efficiencies in blockchain infrastructure. RWA tokenization looks set to modernize the process of funding, trading and managing assets in the digital economy. Therefore, it is important for financial service providers and their advisors to understand the risks and opportunities presented by RWA tokens, as well as legal and regulatory considerations.
Tokenization in a Nutshell
In the physical world, a casino chip might represent the right to exchange it for money, or a concert ticket might represent the right to attend a specific concert. Similarly, in the digital world, tokens are digital assets that represent ownership, rights or value, existing on a blockchain or other distributed ledger technology (DLT).
DLT enables digital tokenization without the need for ledgers or databases controlled by a central entity. A digital token can be “native” – created solely for use on the blockchain, with no real-world twin (e.g., a cryptocurrency like Ether) – or “linked”, where the token is a digital counterpart to something tangible or intangible in the real world. Either way, the DLT records every transfer, and smart contracts can be used to automatically execute the rules attached to the token (such as issuance and redemption protocols, distribution of dividends, interest or other income, or implementation of governance proposals once voting thresholds are satisfied) and even conditions to a transfer (such as permissions, compliance checks and corporate actions). Tokenization has enabled RWA to be divided, traded and managed in ways not previously possible, all while leaving an audit trail where every transaction is transparent and verifiable.
RWA Tokenization
Tokenization can be applied to any object of recognized value, including real estate, precious metals, fine art, intellectual property royalties and financial instruments. Tokenization allows these RWAs to be divided into multiple fractional interests, enabling ordinary investors to own a portion of a high-value asset they would otherwise be unable to purchase outright.
RWA tokenization refers to the process of representing legal or beneficial ownership rights of RWA as “on-chain”, “off-chain” or hybrid tokens. “On-chain” means tokens that can be managed entirely on a DLT, where all key legal information about the asset is embedded in the token and recorded directly on the blockchain – facilitating a transparent, verifiable and immutable record of ownership. Conversely, an “off-chain” structure is where the token serves as a digital representation or reference instrument while the underlying rights and records remain with a third party outside the blockchain using traditional legal and custody frameworks (e.g., platinum bars in a vault or the UK’s Land Registry). Hybrid approaches are also possible, where some legal data is stored on the DLT and other information remains “off-chain”. For example, ownership records or transaction histories might be recorded “on-chain” for transparency and automation, while sensitive documents are kept with traditional legal registries. Hybrid tokens might enable parties to benefit from the efficiency and transparency of DLT, such as automated settlement or real-time ownership tracking, while still relying on established legal processes for aspects like dispute resolution, privacy or compliance.
Legally, it is important to note that ownership of an “off-chain” or hybrid RWA token doesn’t always mean you own the associated RWA outright. It might just be an electronic record of your interest, while the real asset sits safely off-chain in a vault, a bank or in a lawyer’s filing cabinet (share certificates, title deeds, etc.). Understanding whether a token is informational, certificatory or dispositive is crucial for enforceability and investor protection.
Key benefits and advantages of RWA tokenization include:
Enhanced liquidity. Assets that were once hard to trade or only available to deep-pocketed investors can now be sliced into smaller pieces and traded 24/7 globally. Fractional ownership lowers barriers to investment, allowing retail investors to own a portion of a high-value asset.
Enhanced efficiency. DLT is decentralized, enabling the use of smart contracts that automatically execute upon the satisfaction of pre-determined conditions. Trading and settlement automation is instantaneous and simplified, allowing interests to be traded more freely and reducing the need for intermediaries. Even where “off-chain” or hybrid tokens are used, the DLT functions as a ledger of reference that may facilitate more efficient notice, settlement and reconciliation (without replacing existing legal processes).
Transparency. Distributed ledgers are verifiable by anyone with access to the ledger, which mitigates fraud and can enhance effective regulatory compliance. Again, smart contracts can be utilized to enforce relevant governance protocols, laws and regulations automatically. This has the potential to massively simplify current record-keeping with enhanced data disclosure.
Cost savings. Operational cost savings may result from the automation process and the reduced need for intermediaries.
Fund Tokenization
The perceived advantages highlighted above have spurred innovative players in the investment funds market to create tokenized fund products. The issuance of fund tokens, where the token represents a share or unit of ownership in a limited partnership (or other traditional investment fund vehicle), is accelerating across the asset management industry.
In the UK, the Investment Association’s Technology Working Group has worked with HM Treasury and the Financial Conduct Authority (FCA) to develop a blueprint for implementing the tokenization of UK investment funds.2 The FCA has recently shown support for the Monetary Authority of Singapore’s Project Guardian, which is also related to the tokenization of assets and investment funds.3 In 2023, HM Treasury announced plans for the Digital Security Sandbox, where firms can set up and operate financial market infrastructure using digital asset technology.4 The implicit acceptance by the government and regulating bodies that digital assets are here to stay has helped pave the way for the wave of innovation we see today, with the tokenization of UK-authorized funds being brought within the confines of an acknowledged regulatory framework.
Fund tokenization is also being utilized in Europe, with various models emerging in France, Germany and Luxembourg (to name a few). The EU DLT Pilot Regime, set out in Regulation (EU) 2022/858, seeks to achieve some homogeneity across the European jurisdictions by introducing a single regulatory “sandbox” for DLT multilateral trading facilities, settlement systems, and combined trading-and-settlement systems. Such a regime allows authorized operators to admit and record tokenized shares, bonds and fund units below defined value thresholds, while benefiting from targeted exemptions from other EU regulatory requirements.5 This harmonized framework is intended to stimulate cross-border liquidity, underpin investor protection and facilitate supervisory convergence.6
US funds are even using public blockchains, representing the trust that some players now have in the technology. For example, Hamilton Lane has a number of tokenized funds available, including a tokenized feeder for the off-chain Private Infrastructure Fund. This feeder has reduced the typical minimum investment amounts for investors from an average of $5 million (for the direct fund) to $500.7
Key Debates and Considerations about Tokenization
While momentum behind fund tokenization continues to build, certain legal and regulatory challenges must be considered before managers, custodians and distributors can effectively scale this technology:
Regulatory perimeter. In the UK, the FCA’s technology-neutral approach means tokenized fund units that mirror conventional shares/units are already treated as “security tokens” (i.e., specified investments under the UK’s financial markets regulation), so the regulatory regimes and anti-money laundering laws that govern traditional securities offerings still apply. The position is similar across all jurisdictions.
Ownership and title transfer. While the Property (Digital Assets, etc.) Bill8, which formalizes the recognition of digital assets as property under English law, is expected to be passed soon; uncertainty remains as to how certain tokenized units can be legally transferred. If the distributed ledger is only evidential and the legal title stays off-chain, a traditional instrument of transfer is still required. Conversely, if the ledger is the register of legal title, managers must ensure they can still execute mandatory redemptions or freeze units (e.g., in case of anti-money laundering (AML) or sanctions events) consistent with unilateral, court-recognized transactions. Documenting that override power in the fund documentation and coding it into the smart contract is essential.
Smart contracts. As discussed, many tokenized fund models automate issue, redemption and distributions via smart contracts. Smart contracts are, at heart, code that acts like a contract. Following the Law Commission’s 2021 advice, English courts are open to enforcing them if the usual ingredients – offer, acceptance, consideration and intention – are present.
Cross-border distribution and recognition. Regulatory sandboxes (like the FCA’s Digital Securities Sandbox, the EU DLT Pilot, Singapore’s Project Guardian, and Abu Dhabi’s Global Market’s DLT regime) offer safe spaces for players to experiment with digital asset initiatives and innovations, but cross-border recognition is still in its infancy. For example, a UK-domiciled tokenized fund that wishes to promote in the EU or the US must still comply with the full suite of local offering, registration and disclosure requirements applicable to those jurisdictions. Within the EU, this involves navigating both the pan-European Markets in Crypto-assets Regulation (MiCA Regime) and the various domestic sandbox frameworks under the EU DLT Pilot Regime. In the US, the Securities and Exchange Commission (SEC) is scrutinizing tokenized money market funds, feeder funds and similar structures on a case-by-case basis and granting relief, if at all, through bespoke exemptive orders or no-action letters.
Security risks. Private-key theft, protocol bugs, cybercrime and data privacy laws are all risks associated with DLT. Unlike centralized registrars, blockchains are unforgiving – a mistaken or fraudulent transfer may be irreversible. Moreover, the permanent recording of an individual’s wallet address could conflict with laws on controlling and processing personal data.
Conclusions
RWA tokenization is no longer a speculative thought experiment; it is steadily re-engineering the plumbing of global capital markets, offering the promise of deeper liquidity, operational efficiency and increased transparency. Yet the pace of innovation has outstripped the harmonization of the legal and regulatory frameworks that must ultimately safeguard investors, issuers and intermediaries. As we have explored, questions of title, enforceability of smart contracts and cross-border recognition remain unresolved, even as supervisors from the FCA to the European Securities and Markets Authority (ESMA) and the SEC signal a willingness to experiment through sandboxes and pilot regimes. It is, therefore, essential to navigate the legal considerations involved in order to ensure legally sound and compliant tokenization projects. For issuers, this means proactively engaging with evolving regulations to structure trustworthy and attractive offerings. Intermediaries must adapt their processes to ensure robust compliance and risk management in a continuously changing environment. Investors, meanwhile, should seek clarity on rights, protections and recourse mechanisms before participating in tokenized funds, or other RWA tokenization projects.
*Leander Rodricks, a trainee in the Financial Markets and Funds practice, and former Katten Associate Alex Taylor contributed to this advisory.
1 “Real World Asset Tokenisation Market has Grown Almost Fivefold in 3 Years,” CoinDesk, June 26, 2025
2 The Investment Association, UK Fund Tokenisation: A Blueprint for Implementation, November 2023.
3 FCA, FCA welcomes Project Guardian’s first industry report on tokenisation, November 4, 2024.
4 HM Treasury, Consultation on the First Financial Market Infrastructure Sandbox, Digital Securities Sandbox, July 2023.
5 Including the recast Markets in Financial Instruments Directive and the Central Securities Depositories Regulation.
6 ESMA, DLT Pilot Regime – Regulation (EU) 2022/858.
7 Hamilton Lane Private Infrastructure Fund.
8 UK Parliament, Property (Digital Assets etc) Bill, July 17, 2025.
Hitting the Snooze Button: CFTC Staff Issues Relief Intended to Reduce Burdens of Swap Data Notification Requirements
Staff from the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight issued No-Action Relief Letter 25-25 on July 31, 2025 to help ease compliance burdens placed on reporting counterparties in meeting the agency’s current swap data error reporting requirements. In the letter, CFTC staff cited the fact that numerous swap data error notifications filed with the agency have “not been utilized as originally intended” following the CFTC’s adoption of 2020 amendments to its swap data reporting rules.
Generally, under Part 43 and Part 45 of the CFTC’s regulations, swap execution facilities (SEFs), designated contract markets (DCMs) and reporting counterparties must notify CFTC staff if they will not timely correct a swap data error or errors. In particular, CFTC Regulations 43.3(e)(1)(ii) and 45.14(a)(1)(ii) require SEFs, DCMs and reporting counterparties to submit relevant swap reporting error notifications for all errors that cannot be timely corrected, whether or not such errors are material.
The International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) requested relief from these requirements on behalf of their memberships for swap data errors that do not exceed a certain threshold. In granting the industry trade associations’ request, CFTC staff found persuasive both the arguments made in ISDA and SIFMA letter, as well as representations made by various reporting counterparties who have met with staff during the past two and a half years following the implementation of the error notification requirements.
No-Action Letter 25-25 expressly provides that the CFTC will not take an enforcement action against a reporting counterparty that does not file an error notification when it initially discovers a swap reporting error if such reporting counterparty reasonably determines that “the number of reportable trades affected by the error does not exceed five percent of the reporting counterparty’s open swaps for the relevant asset class in swaps for which it was the reporting counterparty.” The CFTC noted that the five percent threshold shall be calculated in accordance with CFTC Regulation 45.14 and added that reporting counterparties may still notify CFTC staff for errors below the five percent threshold if the reporting counterparty believes data quality for the CFTC or users of publicly disseminated swap data would be adversely affected by the error.
No-Action Letter 25-25 can be found here.
Liquid Staking Clears the Howey Hurdle
The Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a staff statement expressing its views that certain liquid staking activities fall outside the federal securities laws.[1]
This guidance follows recent regulatory developments around digital asset staking services. For example, in May 2025, the Division issued guidance on protocol staking that covered self-staking, custodial arrangements, and third-party staking. However, it excluded liquid staking from its scope, leaving market participants without clear guidance on this growing DeFi sector.[2] Further, the liquid staking guidance arrives just months after the SEC’s March 2025 voluntary dismissal of its enforcement action against a self-custodial wallet developer. The SEC had filed charges against the software developer in June 2024, alleging unregistered broker operations and securities offerings through its facilitation of liquid staking services.[3] The dismissal, combined with this new staff guidance, suggests a shift toward a more collaborative regulatory approach.
The Division’s Liquid Staking Framework
The new guidance defines liquid staking as a protocol staking arrangement where crypto asset owners deposit their assets with third-party providers and receive newly minted “Staking Receipt Tokens” in return. These Staking Receipt Tokens evidence the depositor’s ownership of the staked assets and any accrued rewards while providing liquidity through secondary market tradability — addressing a key limitation of traditional staking where assets are “locked up” during the staking period.
Critically, the Division concluded that liquid staking activities, as described in the statement, do not involve the offer and sale of securities under federal law. The SEC Staff applied the Supreme Court’s Howey test, which requires an investment of money in a common enterprise with a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others.
The Division’s analysis hinged on characterizing liquid staking providers’ activities as merely “administrative or ministerial” rather than entrepreneurial or managerial. According to the SEC Staff, these providers act as agents for depositors without making discretionary decisions about whether, when, or how much to stake. The providers also do not guarantee returns, though they may subtract fees from rewards.
Regarding Staking Receipt Tokens, the Division views them as receipts for the underlying crypto assets rather than securities.[4] The SEC Staff emphasized that these tokens don’t generate rewards independently — rather, any economic benefits flow from the underlying protocol staking activities, which the Staff had determined don’t constitute securities transactions.
Important Limitations and Caveats
The Division’s statement included numerous factual assumptions that significantly limit its scope. Specifically, it only applies to arrangements where liquid staking providers do not make discretionary staking decisions, do not guarantee returns, and engage solely in administrative activities. Importantly, any deviation from these assumptions places the activity outside the statement’s protective scope.
The Division also clarified that its conclusions don’t extend to situations where Staking Receipt Tokens are used to generate additional returns through other crypto applications, or where the underlying crypto assets are themselves part of investment contracts.
Commissioner Crenshaw’s Dissent
Not all SEC officials embrace the Division’s guidance. Commissioner Caroline Crenshaw issued a pointed response criticizing the statement for creating a “wobbly wall of facts without an anchor in industry reality.” She argued that the statement’s multiple factual assumptions and circumscribed legal analysis provide little practical comfort to market participants, particularly since the guidance represents only Staff views rather than official SEC policy.
Looking Forward
While this guidance represents welcome clarity for the liquid staking sector, market participants should carefully analyze whether their specific arrangements align with the statement’s factual assumptions, especially given the limited scope of the Division’s statement. The crypto industry continues to evolve rapidly, and regulatory approaches may shift with changing market conditions and political leadership. Companies engaged in liquid staking should closely monitor future regulatory developments in this dynamic space.
[1]See Katten’s coverage of liquid restaking here.
[2]See Katten’s Quick Reads coverage of the Division staff’s previous statement on staking activities here.
[3]See Katten’s Quick Reads coverage of the Consensys litigation here.
[4] Note, however, that the definition of “security” under the Securities Act of 1933 includes, among other things, a “receipt for” a security. 15 U.S.C. § 77b(a)(1). The SEC had previously argued that certain wrapped tokens were securities because they were a “receipt for” another token offered and sold as a security. See Complaint at ¶ 67, SEC v. Terraform Labs PTE LTD, No. 1:23-23-cv-01346 (S.D.N.Y. Feb. 16, 2023). The District Court for the Southern District of New York did not rule on the SEC’s novel theory.
A Cautionary Tale – State AGs Prevail with a Lump of Coal for Major Investment Firms
In November 2024, a Texas-led coalition of thirteen states sued three of the world’s largest investment firms, BlackRock, State Street, and Vanguard Group, claiming the firms violated antitrust and consumer protection laws by buying significant amounts of stock in coal companies and then using their market power to decrease coal production but increase their own profits. The investment firms moved to dismiss. On Friday, August 1st, the states notched a win when the court largely rejected the motion to dismiss brought by the investment firms.
The investment firms argued that they were merely passive investors in the coal companies, while the states alleged that the firms collectively pressured companies to depress the output of coal in an effort to achieve goals and commitments made as part of climate initiatives and execute certain ESG strategies. At the same time output was restricted, however, the demand for coal increased, thus raising the price, resulting in handsome profits.
In rejecting the motion to dismiss, the federal court concluded that the states had sufficiently stated a claim against the scheme to depress output, decrease competition, and increase profits. Specifically, the alleged facts state a plausible violation of the Clayton Act, provide circumstantial evidence of a conspiracy under the Sherman Act, and set out claims for consumer protection violations under Texas, Montana, Iowa, and Nebraska law.
State attorneys general have spent the last four years warning companies that efforts to further ESG and DEI goals could run afoul of the law. This latest decision emphasizes the point.
A CAT-astrophic Funding Model? Court Sends SEC Back to the Drawing Board
The US Court of Appeals for the Eleventh Circuit (Eleventh Circuit) recently vacated the Securities and Exchange Commission’s (SEC) 2023 funding order for the Consolidated Audit Trail (CAT) (the 2023 Funding Order), stayed its decision for 60 days, and remanded the matter to the SEC for further proceedings.[1]
Court Finds SEC’s CAT Funding Approach Unreasonable and Based on Outdated Analysis
The Eleventh Circuit held that the 2023 Funding Order violated the Administrative Procedure Act (APA) because it (i) allowed self-regulatory organizations (SROs) to pass along all of their CAT costs to their members (primarily broker-dealers) while retaining control over CAT governance and budgeting, and (ii) relied on outdated economic analysis despite material changes in CAT costs and cost allocation. When the SEC approved the CAT in 2016, it projected significantly lower creation and operating costs than what materialized. More than $500 million has already been spent to build the still-incomplete system, and annual operating costs now approach $200 million. The court found the SEC’s failure to update its economic analysis or account for the revised cost allocation structure “unreasonable” under the APA.
CAT Costs Left in Place for Now, But SEC Ordered to Conduct New Economic Analysis
The decision temporarily preserves the status quo for CAT cost allocation but requires the SEC to revisit its economic analysis and cost-allocation model. The court emphasized that the 2023 Funding Order is internally inconsistent with earlier CAT approvals and permits SROs to shift the full economic burden to broker-dealers and their customers, contrary to original funding principles. The Eleventh Circuit stayed its vacatur for 60 days, giving the SEC an opportunity to conduct a revamped economic analysis and reconsider how CAT historical and prospective costs should be allocated among market participants.
The Eleventh Circuit’s opinion is available here.
Footnotes
[1] Am. Sec. Ass’n v. SEC, No. 23-13396 (11th Cir. July 25, 2025).
Derivatives and Securities Dealers’ Pre-Hedging of Client Trades Faces Potential New Rules
Derivatives and securities dealers and some of their market users are locked in a potentially consequential debate over what legal standards should be adopted to govern pre-hedging (also called “pre-positioning” or “anticipatory hedging”). Pre-hedging is the practice of dealers establishing market positions to hedge their own risk from client-requested trades prior to accepting and executing the clients’ trades. Pre-hedging is a common practice, but its benefits and the type and timing of dealer disclosures and client consent required to permit it are not settled. The debate is occurring in the context of the effort of the International Organization of Securities Commissions (IOSCO), the international body comprised of the world’s securities and derivatives regulators, to adopt model legal standards governing it. IOSCO’s aim since publishing its 2024 Consultative Report on Pre-hedging (Report)[1] is to adopt consistent international standards that IOSCO’s member regulators can implement in enforceable rules in their respective jurisdictions.
Dealer Conflict of Interest Concerns
Pre-hedging is controversial because it involves (1) the dealer is using the non-public information of a client’s impending order for the dealer’s own benefit, when (2) the dealer’s trade potentially can move market prices adversely to the client’s interests. Some market participants also worry that the practice opens the door for client abuse by giving cover for a dealer, in the guise of “pre-hedging,” to front run a client order by “pre-hedging” but then backing away from executing the client’s order.
The Pros and Cons of Pre-hedging
IOSCO’s Report acknowledges that by reducing a dealer’s risk of financial loss pre-hedging can benefit all market participants by improving liquidity, allowing for better pricing, increasing the speed of execution, providing for a larger trade size, and reducing market impact from the anticipated trade. Dealers view the risk protection provided by pre-hedging to be a necessary predicate for them to offer the desired liquidity in volatile and illiquid commodity and securities markets and for large trades. Some buy-side firms oppose the practice and argue pre-hedging should be limited to large transactions in less liquid markets where the parties negotiate the terms for the pre-hedging in advance and better understand the potential market price impact from it. The Report contends that the potential for abuse is aggravated by a lack of transparency into the effects from a pre-hedge transaction such that clients or counterparties may not be able to monitor and assess whether a dealer’s pre-hedging provided benefits or, instead, harmed the client’s or counterparty’s interests.
The Current Array of Different Standards
There are no consistent international standards for pre-hedging. The CME Group (CME) and ICE Futures U.S. (IFUS) impose specific requirements for pre-hedging of block trades, and certain industry trading codes, such as the FX Global Code adopted by the Global Foreign Exchange Committee for wholesale forex transactions, delineate standards for pre-hedging in their particular markets.
The CME and IFUS rules require that (1) the pre-hedging party must have a good faith belief that the anticipated block trade will be executed; (2) each party to the anticipated trade must act in a principal capacity and not in an agency capacity; (3) the pre-hedging party must make clear to its counterparty that it is acting as a principal; (4) brokers may not pre-hedge; and (5) front-running is prohibited.
Principle 11 in the FX Global Code, and its accompanying Commentary, focuses on the dealer’s intent and disclosure, requiring that (1) pre-hedging should be for the management of the risk associated with one or more anticipated counterparty orders; (2) pre-hedging must be designed and intended to benefit a counterparty; (3) the pre-hedger must be acting as a principal; (4) the pre-hedger must reasonably anticipate in good faith that it will execute the counterparty’s order; (5) the pre-hedger should limit pre-hedging to circumstances where there is a need for risk management; and (6) pre-hedgers should act fairly and with transparency, such that dealers should communicate their pre‐hedging practices to their counterparties in a manner that allows a counterparty to fully understand the potential impact on the execution of its order.
The U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) do not have rules specifically governing pre-hedging, but the CFTC has construed certain of its swap dealer disclosure and business conduct rules to apply to pre-hedging. In a 2023 consent settlement the CFTC made non-adjudicated findings that the respondent swap dealer’s disclosures of its pre-hedging practices were inadequate and its pre-hedging violated Commodity Exchange Act Section 4sand CFTC swap dealer regulations 17 C.F.R. §§ 23.431(a)(3)(ii) and §23.433.[2] The order recounted allegations that the respondent had pre-hedged customer transactions minutes or seconds before they occurred and that caused worse pricing for the customer. The order effectively found that the swap dealer’s disclosures to its client that it “may” seek to pre-hedge transactions, and that pre-hedging “may” affect the price of the underlying asset, were inadequate. The order suggests that the swap dealer in that context was required to disclose the more specific information that pre-hedging may occur in seconds or minutes before the customer’s trade and that it may negatively affect the price of the customer’s trade.
A recent decision of the U.S. Court of Appeals for the Second Circuit in Johnson v. United States,[3] however, raises significant questions about whether and when a dealer is in a fiduciary relationship with an institutional counterparty and when the dealer’s use of a counterparty’s non-public information about an impending trade to pre-hedge the dealer’s financial risk constitutes misappropriation. In July 2025, the Second Circuit reversed a 2017 criminal conviction of the head of an international bank’s foreign exchange trading desk for wire fraud and conspiracy arising out of a pre-hedging transaction. The government’s case charged, among other things, that the pre-hedging of the bank’s 2011 conversion of U.S. dollars into 2.25 billion British Pounds for a client constituted a misappropriation of material non-public information about the client’s anticipated transaction.
The court reversed in part based on its finding that it is unlikely a reasonable jury being properly instructed would have reached unanimous agreement that a fiduciary duty existed where the transactional documentation disclaimed that a fiduciary duty existed and to form a de facto fiduciary relationship requires “quite strong” evidence which the court did not find existed in that case. The court opined that a fiduciary duty cannot be “lightly implied” and a customer’s placing “great confidence and trust” in its dealer “is insufficient”. Rather, the court held that a fiduciary duty requires “de facto control and dominance” over the principal’s affairs.
The court also held that the proof of a misappropriation of information was insufficient. The court explained that misappropriation requires proof that the defendant used the information in a way that was not permitted, and the use was for the defendant’s own benefit and to the detriment of the other. The court found that the evidence showed that the trading desk in executing the pre-hedge acted as it “normally” would and this undermined the government’s argument that the defendant used confidential information in “an abnormal or knowingly impermissible way.”
Important Legal Issues for Dealers and Clients
Scope of the Terms “Dealer” and “Client”
The IOSCO Report’s definition of pre-hedging is framed only as to “dealers” and “clients,” but does not define those terms.[4] Yet, it seems to contemplate only professional dealers by differentiating “dealers” from “issuers, brokers, investors and other wholesale market participants.” This characterization would appear to exclude commercial end users who engage in transactions that from time-to-time might function as dealing, but who do not hold themselves out to the marketplace as a dealer and do not engage in the activity as a regular business.[5] Framing a dealer’s duties as those owed to clients also suggests the Report’s recommendations are aimed at the activities of professional dealers in the business of serving clientele.
The Report does not define the term “client.” Traditionally, the term can imply a relationship in which a party is hired to serve the interests of the “client” and assume a range of duties to a client, such as duties of loyalty, disclosure of material facts, and best execution. However, there can be circumstances in which the counterparty to a dealer has no special relationship with the dealer but is simply a counterparty. The Second Circuit’s decision in Johnson would seem to illustrate that. The CFTC’s rules for swap dealers use the more neutral term “counterparty,” whereas its rules for commodity trading advisors use the word “client,” which comports with the language of Section 4o of the Commodity Exchange Act and the traditional relationship between commodity trading advisors and the persons who hire them. Given these distinctions, the final IOSCO standard might be crafted to refer to counterparties or at least clarify that the term client is not intended to assume or denote a particular legal relationship between the transacting parties.
Limiting Pre-Hedging Restrictions to the Receipt of Material Information
IOSCO’s proposed definition of pre-hedging covers trading “after the receipt of information about an anticipated client transaction and before the client (or an intermediary on the client’s behalf) has agreed on the terms of the transaction and/or irrevocably accepted an executable quote.” Some commenters have argued that pre-hedging restrictions should be triggered only upon receipt of material information about a counterparty’s potential interest in entering a specific order to trade. In this regard, dealers can receive all sorts of information throughout a trading day relating to potential transactions, much of which may be immaterial. Limiting the definition to material information would be consistent with the Report’s focus on dealer restrictions upon receipt of a specific trade request.
The Scope and Timing of Dealer Disclosures to Clients
One of the most potentially consequential standards in IOSCO’s recommendations is that of delineating a dealer’s disclosure requirements. The scope of disclosure requirements implicates significant issues of cost, feasibility, and legal exposure. IOSCO’s Recommendation B2 set forth in its Report states that a dealer should provide clear disclosure to clients of the dealer’s pre-hedging practices but leaves open for further consideration how disclosure should occur, when it should occur, and the specific information that must be disclosed. In this connection, the Report raises the issue of whether disclosure should be (1) trade-by-trade, (2) generic as part of on-boarding documentation, and/or (3) post-trade.
The dealer community has argued that disclosure obligations should be flexible and bespoke based on the client and the nature of the transaction. For example, it has argued that trade-by-trade disclosure would be problematic for competitive Requests for Quotes sent on electronic trading platforms since they are largely executed by automated trading algorithms, and dealers may not have a direct relationship with clients. Bespoke disclosures to clients typically occur when the anticipated transaction is large and/or complex and the scope of pre-hedging is specifically negotiated with the client or counterparty. The Report explained that large and/or complex transactions generally are negotiated bilaterally and involve a longer lead time, allowing the dealer and client more opportunity to discuss terms for pre-hedging.
Client Consent
The Report recommends that client consent to pre-hedging should be required. The Report does not specify what type of consent is required, i.e., trade-by-trade, affirmative general consent, or implied negative consent following disclosure. As with disclosures, dealers argue that trade-by-trade consent is infeasible in fast-moving or electronic markets.
Compliance and Supervisory Controls
The Report recommends that dealers should implement appropriate compliance and supervisory arrangements for pre-hedging including: (1) supervisory systems and reviews, and (2) trade and communications monitoring and surveillance. This raises the question whether surveillance programs specifically targeting pre-hedging should be required. Some dealers already have risk-based surveillance for front-running and fair pricing reviews, and other surveillance to comply with established industry codes. They argue that the efficacy of requiring even more granular surveillance for pre-hedging is not warranted, especially when weighed against its cost and difficulty.
Conclusion
IOSCO is expected to adopt legal standards for pre-hedging in the not-too-distant future that member countries eventually may include in formal regulations. Those standards could (1) significantly impact dealer legal exposure and the scope of compliance controls and (2) impose additional costs for dealers. For buy-side firms, the standards could provide increased legal rights and protection, but also conceivably less attractive quotes and liquidity if dealers need to price in the higher market risks and costs to them if pre-hedging is not available.
[1] https://www.iosco.org/library/pubdocs/pdf/IOSCOPD778.pdf.
[2] In re Mizuho Capital Markets LLC, CFTC No. 23-24 (Apr. 25, 2023).
[3] Johnson v. United States, 2025 WL 1966390, No. 24-1221 (2d Cir., July 17, 2025).
[4] The FX Global Code also uses the term “client” in its directives.
[5] The SEC and CFTC in various releases have generally described the attributes of “dealers” as entities that act in a principal capacity as part of a regular business to provide liquidity to a market by both standing to buy and sell within an offered bid/ask spread of prices with the objective to profit from the spread and not hold a market risk position. E.g., CFTC and SEC Joint Release: Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant,’’ 77 Fed. Reg. 30596, 30607-30614 (May 23, 2012). The SEC’s more recent effort to expand its definition was rejected by the courts and abandoned. Nat’l Ass’n of Private Fund Managers et al. v. Securities & Exchange Comm’n, No. 4:24-cv-00250 (N.D. Tex. Nov. 21, 2024); Crypto Freedom All. of Texas et al. v. Securities & Exchange Comm’n, No. 4:24-cv00361 (N.D. Tex. Nov. 21, 2024).
CFTC Issues No-Action Relief for SEFs on Order Book Obligations
In a marked departure from its position since 2013, the Commodity Futures Trading Commission (CFTC) issued No-Action Letter 25-24 on July 30, 2025 (Letter 25-24), stating that it will not recommend enforcement action against a swap execution facility (SEF) that does not offer a central limit order book, as required under CFTC Regulation 37.3(a)(2), with respect to swap transactions that are not subject to the trade execution requirement under Section 2(h)(8) of the Commodity Exchange Act (CEA).
This no-action relief reflects the CFTC’s recognition of how the swaps market has evolved over the past decade and signals a shift in regulatory posture. By moving away from a requirement that has seen little adoption in practice, the CFTC appears increasingly inclined to tailor its regulatory framework to reflect the operational realities of swap execution.
Background
The CFTC’s 2013 final rule establishing the SEF framework implemented key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.[1] A SEF is a CFTC-registered trading system or platform that facilitates the execution of swaps by bringing together multiple participants through regulated methods of execution and is a central mechanism through which the CFTC aims to enhance transparency, competition, and oversight in the swaps market. The rule sought to shift trading activity away from opaque, bilateral negotiations and toward more centralized and standardized execution protocols.
As part of this effort, the CFTC prescribed certain requirements for registered SEFs, including the minimum trading functionality requirement set forth in CFTC Regulation 37.3(a)(2). This provision obligates all SEFs to maintain an order book for each swap listed on the facility, regardless of whether the swap is subject to the trade execution mandate (i.e., order books are required for both “required transactions” and “permitted transactions”).
An order book is defined as (i) an electronic trading facility, (ii) a trading facility, or (iii) a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers. In practice, an order book enables participants to post executable bids and offers visible to all other users of the platform, thereby facilitating real-time price discovery and promoting pre-trade transparency across the market.
To balance these transparency objectives with execution flexibility, the 2013 SEF final rule also permits SEFs to offer request-for-quote (RFQ) systems in conjunction with order books. An RFQ system allows a participant to solicit price quotes from a minimum number of market participants (at least three for required transactions), enabling competition while accommodating products or trade sizes that may be ill-suited to order book trading. This framework was intended to foster broader participation and competition while reflecting the trading conventions across swap markets.
No-Action Letter
On July 30, the CFTC’s Division of Market Oversight (Division) issued a no-action letter stating that it would not recommend enforcement action against a SEF that does not offer an order book for permitted transactions (i.e., swaps not subject to the trade execution mandate and therefore not required to be executed on a SEF or designated contract market).
The letter responded to a request from LSEG FX SEF, operated by Refinitiv US SEF LLC (LSEG SEF), which argued that its order book for permitted transactions had received no executable bids or offers since launch, and that maintaining the order book imposed ongoing technology, compliance, and staffing costs disproportionate to its use, minimal contribution to pre-trade transparency, and lack of regulatory benefit. LSEG SEF further noted that permitted transactions on its platform were consistently executed through the RFQ system, in line with long-standing market convention and client preference. The Division acknowledged that order books have seen little to no adoption for permitted transactions across the industry. The no-action relief aligns with prevailing market practice and echoes themes raised in the CFTC’s 2018 SEF reform proposal, which had contemplated eliminating the order book requirement for permitted transactions to better reflect actual market behavior.[2]
This relief applies only to permitted transactions and does not affect SEF obligations for required transactions. It will remain in effect unless and until the CFTC adopts a rule to the contrary.
Impact
SEFs that list permitted transactions stand to gain regulatory and operational efficiencies from no longer being required to maintain order books that have seen little or no use. For platforms that primarily rely on RFQ systems, removing this infrastructure can significantly reduce financial and compliance burdens.
More broadly, the no-action letter reflects the CFTC’s continued shift toward aligning regulatory requirements with the practical realities of swap execution and market practice. Although the 2013 SEF final rule envisioned wider adoption of centralized trading protocols, market participants have consistently favored RFQ systems, particularly for less liquid or bespoke swaps. By relaxing the order book requirement for permitted transactions, the CFTC has acknowledged this divergence while preserving its existing framework for required transactions.
SEFs are not required to maintain an order book in the following circumstances, whether under existing CFTC rules or pursuant to the no-action relief:
Swaps executed off-SEF;
Unlisted swaps; and
Permitted transactions executed via other methods pursuant to the instant no-action relief.
While the changes streamline SEF operations and reflect prevailing execution methods, they may also reinforce the market’s reliance on less transparent protocols. Unlike order books, RFQ systems do not display live bids and offers to the broader market, particularly when requests are sent to a limited set of counterparties. The continued dominance of RFQ systems for permitted transactions underscores the limited role of centralized trading in certain swap markets, raising questions about whether the original goals of standardized execution remain achievable for more bespoke products.
Conclusion
Letter 25-24 marks a meaningful step in the CFTC’s shift toward more practical SEF oversight. While it reduces compliance costs for permitted transactions, some market participants may view the move as a step back from transparency, raising concerns about limited price discovery and reduced visibility in certain segments of the swaps market. As permitted transactions increasingly occur through less visible execution methods, the challenge for regulators will be to strike an appropriate balance between operational efficiency and the public interest in maintaining accessible, transparent markets.
Footnotes
[1] Core Principles and Other Requirements for Swap Execution Facilities; Final Rule, 78 Fed. Reg. 33,476 (June 4, 2013), available at: http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2013-12242a.pdf.
[2] Swap Execution Facilities and Trade Execution Requirement, 83 Fed. Reg. 61,946 (Nov. 30, 2018), available at: https://www.govinfo.gov/content/pkg/FR-2018-11-30/pdf/2018-24642.pdf.
SEC Announces George Botic to Serve as Acting Chair of the PCAOB
The Securities and Exchange Commission announced that it has designated George R. Botic to serve as Acting Chair of the Public Company Accounting Oversight Board, effective July 23. Current PCAOB Chair Erica Y. Williams has resigned from the Board, effective July 22.
“I thank Erica Williams for her dedicated service on the Board, and I look forward to working with George Botic as Acting Chair,” said SEC Chairman Paul Atkins.
“I am honored to work with the SEC and the staff of the PCAOB as Acting Chair to ensure that we meet the mission established by Congress,” said Botic.
Botic is a CPA and became a PCAOB Board member in October of 2023. Prior to joining the Board, he served as the director of the PCAOB’s division of registration and inspections, where he oversaw the registration and inspection of all domestic and foreign accounting firms that audit public companies whose securities trade in the U.S., as well as all broker-dealer audits. He previously served in various roles at the PCAOB, including as its director of the office of international affairs, special advisor to former chairperson James R. Doty, and deputy director of the registration and inspections division.
Deadline Approaches for Comments on NASAA Proposed Model Franchise Broker Law
Key Takeaways:
The North American Securities Administrators Association (NASAA) has proposed a Model Franchise Broker Registration Act that would require franchise brokers and their representatives to register with states and provide presale disclosure statements.
If adopted, the model law would serve as a framework for states to regulate franchise brokers, similar to existing laws in California, New York and Washington.
The proposed act outlines prohibited practices, registration requirements, disclosure obligations and recordkeeping duties for franchise brokers and their representatives.
Comments on the proposal are due by August 27, 2025, and NASAA may adopt a final version after reviewing public input.
NASAA is requesting public comment for its proposed NASAA Model Franchise Broker Registration Act (Franchise Broker Act). If adopted by NASAA, the proposed law would be a model for states to use to regulate franchise brokers and their representatives through registration and presale disclosure obligations. NASAA’s request for comment and proposed model Franchised Broker Act can be accessed here. Comments are due by August 27, 2025.
Three states currently have laws regulating franchise brokers. New York and Washington have long required franchise brokers to register with state franchise administrators before offering or selling franchises. Last September, California amended its California Franchise Investment Law to require franchise brokers to comply with annual registration and additional presale disclosure requirements. Subject to funding appropriation, California’s new broker regulation regime is anticipated to go into effect in July 2026.
Summary of NASAA’s Proposed Model Franchise Broker Act
As previously reported, NASAA, which is an association that includes state franchise regulators, has been contemplating franchise broker regulation for some time. Last year it solicited comments on a prior version of its proposed model act.
As currently drafted, NASAA’s proposed Franchise Broker Act lists various prohibited practices and would require franchise brokers and their representatives to register with a state before offering or selling franchises, provide a presale “disclosure statement” before engaging with a prospective franchisee about a specific franchise opportunity and maintain specified records. It would be unlawful for a franchisor to use the services of a franchise broker or franchise broker representative that is not registered in the relevant state.
NASAA’s proposed model law focuses on franchise brokers and their representatives.
A “franchise broker” is a person or entity “that directly or indirectly engages in the business of the offer or sale of a franchise and receives, or is promised, a fee, commission or other form of consideration” from a franchise system. The term “franchise broker” does not include: a franchise broker representative; a franchisor, subfranchisor, franchisor affiliate, or their officers, directors or employees; or a current franchisee so long as such franchisee does not receive fees, commissions or other forms of consideration valued at more than $5,000 in a calendar year.
A “franchise broker representative” is a natural person (other than a franchise broker) “who represents a franchise broker in effecting or attempting to effect the offer or sale of a franchise.” It can include partners, officers and directors of a franchise broker, as well as employees or consultants involved in franchise sales or solicitations but does not include an individual involved only in clerical or administrative acts.
Broker Registration
Under NASAA’s proposed Franchise Broker Act, a franchise broker and a franchise broker representative must be registered with the relevant state before offering or selling franchisees in that state. Franchisors may not use an unregistered franchise broker or franchise broker representative.
As part of the annual registration process, a franchise broker or representative must submit a completed application (NASAA envisions a short uniform application form), consent to jurisdiction, venue and service of process in the relevant state and pay a registration fee. NASAA anticipates issuing a proposed model form of application. NASAA’s proposal further contemplates that a state may impose an examination, minimum experience, continuing education and/or minimum financial or insurance requirements as part of the registration process.
Unless a state imposes a different time period, broker registrations would be tied to a particular calendar year expiring on December 31.
A state may deny, suspend or revoke the registration of any franchise broker or franchise broker representative, including, among other grounds, if the broker or representative has been convicted of certain crimes, engaged in dishonest or unethical practices, is insolvent or fails to comply with applicable franchise sales laws.
Broker Disclosures
Under the proposed act, a franchise broker or franchise broker representative must first provide a prospective franchisee with a “disclosure statement” before engaging about a specific franchise opportunity.
The disclosure statement must contain disclosures regarding (i) material litigation, (ii) how the franchise broker or representative was compensated in the previous calendar year and (iii) any other information the particular state requires. NASAA envisions the disclosure statement will be just a few pages long and contain a mix of general statements specifically prescribed by NASAA about working with franchise brokers and the mandated broker-specific disclosures. NASAA anticipates issuing a proposed model form of disclosure statement.
A state may require the disclosure statement be filed before it can be used.
Other Requirements
Under the proposed act, every franchisor broker and representative must keep and maintain a complete set of books, records and accounts related to any offers and sales of franchises for five calendar years.
Comments and Next Steps
The deadline to comment on NASAA’s proposed Franchise Broker Act is August 27, 2025. Comments must be emailed to NASAA’s Comments inbox ([email protected]), with copies to Theresa Leets ([email protected]), Bill Beatty ([email protected]) and Erin Houston ([email protected]). Comments should not include any information that the commenter does not wish to become publicly available as NASAA intends to post all comments received to its website without edits or redactions.
After the close of the comment period, NASAA will review all comments and consider whether to present the proposal, in its current or revised form, to the NASAA Board of Directors for potential adoption by the NASAA membership. Though not binding in any state, many franchise registration states have traditionally followed NASAA’s franchise-related recommendations. Accordingly, we anticipate that various franchise registration states will amend their franchise sales laws to impose registration and presale disclosure requirements on franchise brokers and their representatives if NASAA adopts its proposed Model Franchise Broker Act.
We urge you to provide your comments before the deadline, and we will update you on NASAA’s decision regarding its Franchise Broker Act as well as any model registration application or model disclosure statement it proposes.
Sustainable Energy & Infrastructure Litigation Updates — August 2025
Federal Regulation
There was a noteworthy development in the ongoing legal challenge to the SEC’s mandatory climate disclosure law (dating from the Biden administration), which is currently pending in the Eighth Circuit. Following the decision by the Trump administration SEC to cease efforts to defend the regulation, the court had directed the SEC to state “whether the Commission intends to review or reconsider the rules at issue in this case,” and if the SEC elects to take no action, “whether the Commission will adhere to the rules if the petitions for review are denied.” In other words, the Eighth Circuit had signaled that the SEC should undergo the normal administrative process to overturn the climate disclosure regulation if the SEC no longer supported it.
On July 23, 2025, the SEC declined to take up the court’s invitation, and instead asked the Eighth Circuit to rule on the legality of the climate disclosure regulation, stating that “a decision from this Court would inform the scope and need for such action, including providing insights as to the Commission’s jurisdiction and authority,” and that such a decision “would [] promote an efficient resolution to the dispute.”
The lone remaining Democratic SEC commissioner took issue with the SEC’s response, noting its failure to answer one of the court’s key questions (e.g., whether the SEC would “adhere to the [R]ules if the petition for review are denied”), and arguing that the “[SEC] was trying to avoid its legal obligations” since “[i]f this Commission wants to rescind, repeal, or modify the Rules, which were promulgated by-the-book, then it must do the statutorily-required work [and] cannot take the easy way out . . . [by] ask[ing] the Court to do the work for us.” It seems probable that the Trump administration SEC is seeking a judicial determination that will limit the scope of the SEC’s authority, thus rendering it far more difficult for the SEC to engage in such climate-focused rulemaking in the future (e.g., under a different administration).
State Regulation
On July 9, 2025, the California Air Resources Board (CARB) — the agency responsible for implementing California’s mandatory climate disclosures — issued additional guidance concerning this regulation, in the form of an FAQ. Specifically, the CARB announced that, despite recent delays, it is still “committed to developing a regulation by the end of the year,” and that, to further compliance efforts, it will “post a public docket for covered entities to post the location of their public link to their first climate-related financial risk report,” as this “public docket will help support transparency.”
The CARB provided additional guidance concerning its enforcement philosophy with respect to the imposition of penalties, emphasizing that a key consideration is “whether the violator took good faith measures to comply,” indicating that companies undertaking “good faith” compliance efforts would be unlikely to suffer significant penalties as a consequence for a violation of the climate disclosure regulation, at least during the initial phase of implementation.