NFA warns it may “reach out” to firms active in virtual currency segment

Maria Nikolova

NFA may reach out to CPOs, CTAs and IBs involved in virtual currency business, to request information as needed.

The United States National Futures Association (NFA) has earlier today published a short notice concerning certain types of entities whose operations involve virtual currencies. The regulator reminds commodity pool operators (CPO) and commodity trading advisors (CTA) that execute transactions involving virtual currencies or virtual currency derivatives, as well as introducing brokers (IB) that solicit or accept orders in virtual currency derivatives that they have an obligation to immediately notify NFA by amending the firm-level section of the annual questionnaire.

The purpose of today’s notice is to inform CPOs, CTAs and IBs that NFA is not requiring the filing of this additional information at this time. NFA may, however, reach out to individual firms to request information as needed.

Let’s recall that back in December 2017, the NFA announced additional reporting requirements for CPOs and CTAs that trade virtual currency products.

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. Until further notice, this obligation will apply on a continuous basis—any CPO or CTA that does not currently trade virtual currencies or related derivatives must notify NFA if it begins trading these products.

The questions that have been added to the firm-level section of the questionnaire include:

CPO Questions

  • Does your firm operate a pool that has executed a transaction involving a virtual currency (e.g., bitcoin)?
  • Does your firm operate a pool that has executed a transaction involving a virtual currency derivative (e.g., a bitcoin future, option or swap)?

CTA Questions

  • Does your firm offer a trading program for managed account clients (other than a pool you reported under the CPO questions) that has engaged in any transaction involving a virtual currency (e.g., bitcoin)?
  • Does your firm manage an account (other than a pool you reported under the CPO questions) that has executed a transaction involving a virtual currency derivative (e.g., a bitcoin future, option or swap)?

Beginning with the first quarter of 2018, 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.

Also in December 2017, the NFA outlined additional reporting requirements for IBs that solicit or accept orders in virtual currency products. The question added to the firm-level section of the questionnaire is:

  • Does your firm solicit or accept orders involving a virtual currency derivative (e.g., a bitcoin future, option or swap)?

Beginning with the first quarter of 2018, IBs that solicit or accept orders for virtual currency derivatives are also required to report the number of accounts they introduced that executed one or more trades in a virtual currency derivative during each calendar quarter.

In the meantime, the status of virtual currencies has been in the focus of regulators and even the US legal institutions. Earlier this month, Judge Jack B. Weinstein of the New York Eastern District Court agreed with the Commodity Futures Trading Commission (CFTC) and Chicago Mercantile Exchange Inc that virtual currencies are commodities under the Commodity Exchange Act (CEA). As a result, the CFTC was found to have standing to exercise its enforcement power over fraud related to virtual currencies sold in interstate commerce.

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