How Does the Regulatory Classification of a Derivative (E.g. Security Vs. Commodity) Affect Custody Requirements?

The regulatory classification significantly impacts custody requirements. Derivatives classified as commodities (like most crypto futures in the US) typically fall under CFTC rules, which may have specific requirements for segregated accounts and collateral handling.

Derivatives classified as securities would fall under SEC rules, imposing different, often stricter, requirements, including the use of qualified custodians. The classification determines the applicable regulatory framework for asset safety.