On December 15, the Commodity Futures Trading Commission (CFTC) announced a proposed interpretation concerning its authority over transactions involving virtual currency, which includes its view regarding the term “actual delivery” in the context of retail virtual currency transactions. According to the proposed interpretation, the CFTC claims that it has “explicit oversight authority” over “retail commodity transactions” under Section 2(c)(2)(D) of the Commodity Exchange Act. Applying a broad definition of the term virtual currency, the CFTC believes that these type of currencies are commodities, which means that certain transactions in virtual currencies are subject to CFTC oversight.
The proposed interpretation sets forth two primary factors that market participants must demonstrate to prove “actual delivery” of virtual currency in connection with retail commodity transactions:
- a customer has the ability to “(i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction”; and
- “the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) does not retain any interest in or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.”
Comments on the proposed regulation must be received on or before March 20, 2018.
In October, the CFTC’s LabCFTC released “A CFTC Primer on Virtual Currencies,” which discusses potential use-cases for virtual currencies, outlines the agency’s role and oversight of virtual currencies, and highlights the risks associated with virtual currencies. The CFTC also launched its own webpage with virtual currency resources and a customer advisory warning of the risks of virtual currency trading.