NFA says it carefully monitors members’ activities in virtual currency products

Maria Nikolova

These activities have been modest to date, the National Futures Association says in its Annual Report for Fiscal Year 2019.

The United States National Futures Association (NFA) today published its Annual Report for Fiscal Year 2019 (July 1, 2018-June 30, 2019), underlining how regulation has been evolving.

This fiscal year, NFA underwent a process to ensure that NFA’s regulatory programs evolve to address current challenges such as virtual currencies and cyber security. The Association adopted an Interpretive Notice establishing disclosure requirements regarding virtual currency activities.

In December 2017, a number of CFTC-regulated trading venues launched derivatives on virtual currency products, including bitcoin. NFA has concerns that customers may not fully understand the nature of virtual currencies and virtual currency derivatives, the substantial risk of loss related to these products given their volatility, and the limitations of NFA’s regulatory authority over spot market virtual currencies. Therefore, NFA adopted an Interpretive Notice entitled Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities, which became effective in October 2018.

The Interpretive Notice outlines disclosure requirements for FCMs, IBs, CPOs and CTAs that engage in activities related to virtual currencies or virtual currency derivatives. Among other obligations, it requires FCM and IB Members to provide virtual currency derivative customers with NFA’s Investor Advisory – Futures on Virtual Currencies Including Bitcoin and the CFTC’s Customer Advisory: Understand the Risks of Virtual Currency Trading.

Furthermore, the Interpretive Notice also requires CPO and CTA Members to provide investors with robust disclosures related to their investor activities in spot market virtual currencies and virtual currency derivatives.

Given the volatility in the underlying virtual currency products, NFA is requiring each CPO and CTA to immediately notify NFA if it executes a transaction involving any virtual currency or virtual currency derivative on behalf of a pool or managed account.

CPOs and CTAs that have executed transactions involving virtual currencies or related derivatives are also required to report the number of their pools or managed accounts that executed one or more transactions involving a virtual currency as well as the number of their pools or managed accounts that executed one or more transactions involving a virtual currency derivative during each calendar quarter.

IBs that solicit or accept orders for virtual currency derivatives are required to report the number of accounts they introduced that executed one or more trades in a virtual currency derivative during each calendar quarter.

Through these specific reporting requirements, NFA carefully monitors its Members’ activities in virtual currency products. These activities have been modest to date, the Association says.

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