1. Lowenstein Sandler Secures No-Action Relief for Zero Cash Balance Brokerage Accounts
On September 17, Lowenstein Sandler secured two no-action letters (the Zero Cash Balance Letters) from the Securities and Exchange Commission (SEC) on behalf of its clients eToro USA Securities Inc. and Alpaca Securities LLC, providing important regulatory clarity for broker-dealers and affiliated fintech platforms. The Zero Cash Balance Letters permit broker-dealers and clearing firms to offer brokerage accounts where stock purchases are funded on an as-needed basis by drawing from customer bank accounts, crypto accounts, or remittance payment accounts held with affiliated or third-party financial institutions, rather than maintaining idle cash balances. On the technical side, the letters allow custodians to transfer free credit balances from securities transaction proceeds into a customer’s designated external account under a standing authorization pursuant to Exchange Act Rule 15c3-3(j)(2)(i) and permit introducing broker-dealers to maintain the $5,000 minimum net capital requirement under Rule 15c3-1(a)(2)(vi), even when the customer’s external cash account is held at an affiliate. See Lowenstein Sandler’s related client alert here and the no-action letter for Alpaca here and for eToro here.
2. European Central Bank Launches Pontes Platform To Settle Wholesale Tokenized Assets
On September 21, the Eurosystem launched Pontes, a new platform enabling wholesale tokenized asset transactions to be settled in central bank money. Pontes is the first initiative under the Eurosystem’s broader strategy to adapt central bank infrastructure for a tokenized financial future. The platform builds on successful 2024 distributed ledger technology (DLT)-based settlement tests, during which public and private sector stakeholders identified access to a risk-free settlement asset as critical for wider adoption of tokenization technology. An initial group of market participants and DLT operators has already completed onboarding, with additional participants expected to connect in the coming months. Pontes will launch with a core set of services, with enhanced features and extended operating hours to be introduced gradually, targeting full implementation by 2028. The initiative sits alongside Appia, a parallel Eurosystem program focused on developing an integrated ecosystem for DLT-based financial services, which aims to deliver a comprehensive blueprint by the same year. Together, these efforts signal the European Central Bank’s (ECB) commitment to positioning Europe at the forefront of digital asset infrastructure. See the ECB’s press release here.
3. CFTC Releases Staff Advisory on Mention Markets
On September 22, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight issued a staff advisory addressing “Mention Markets” (i.e., prediction-market event contracts that settle on whether a specific individual will say certain words, attend an event, or interact with another person). Unlike most event contracts that settle on independently verifiable outcomes such as election results or economic data, Mention Markets turn on the discrete conduct of a named individual, raising what the CFTC views as a heightened, and potentially presumptive, susceptibility to manipulation under DCM Core Principle 3. The advisory outlines several factors designated contract markets (DCMs) should evaluate before listing these contracts, including whether the controlling individual is subject to independent legal or professional obligations that deter manipulation, the risk of external pressure campaigns aimed at influencing the individual, the degree of independent verification and public scrutiny surrounding the settlement event, and the robustness of the DCM’s own surveillance and prophylactic trading controls. While the CFTC stops short of an outright ban and acknowledges that well-designed contracts with sufficiently rigorous safeguards may overcome the presumption, it makes clear that any Part 40 filing for a Mention Market contract will face a heightened standard of review and encourages DCMs to engage with staff early in the product design process. See the CFTC’s press release here and the staff letter here.
4. CFTC’s Innovation Task Force To Host Frontier Forum Series on Innovative Financial Technologies
On September 21, the CFTC’s Innovation Task Force announced it will host the Frontier Forum Series, a series of roundtables on emerging financial technologies. Each forum will provide a public venue to discuss financial technologies and market structures and will include industry leaders across the private and public sectors in an effort to promote innovation while preserving the CFTC’s mandate to protect market participants and the market integrity and resilience of U.S. financial markets. The inaugural forum is scheduled to take place on October 28, with a focus on artificial intelligence and agentic finance. See the CFTC’s press release here.
5. CSBS Releases AI Supervisory Framework for Examining Banks and Nonbank Financial Institutions
On September 16, the Conference of State Bank Supervisors (CSBS) released a new AI Supervisory Framework, designed to guide state examiners in evaluating the use and risks of artificial intelligence (AI) at state-chartered banks and state-licensed nonbank financial institutions. The framework provides a principles-based, discretionary tool for examiners to identify AI deployments, assess associated risks, and determine when deeper review may be warranted, calibrated to each institution’s size, complexity, and risk profile. It draws on leading AI risk management resources, including the National Institute of Standards and Technology’s AI Risk Management Framework, the Cyber Risk Institute’s Financial Services AI Risk Management Framework, and the U.S. Department of the Treasury’s AI Lexicon. The framework does not introduce new legal obligations or replace existing supervisory requirements but rather provides a practical, risk-proportionate structure for examiners to identify AI use across an institution’s products, services, operations, and compliance functions and to evaluate the governance, risk management, and controls surrounding that use. The package includes a Core Examiner Guide with initial scoping questions and a document request list, a detailed Examiner Work Program with source-based context and examiner focus points for each procedure, a set of Nonbank AI Supplements that overlay AI-specific considerations onto existing third-party/vendor oversight, model risk, and consumer protection examinations, and a Risk Tiering Worksheet that categorizes AI use cases into three tiers (low, moderate, and high) based on consumer impact, human oversight, harm potential, and data sensitivity. See the related press release here and the resources here.
