On December 14, 2017, the National Futures Association (NFA) issued reporting requirements1(Reporting Requirements) obliging any NFA member commodity pool operator (CPO) or commodity trading advisor (CTA) to notify the NFA immediately once it has executed a transaction involving any virtual currency transaction or virtual currency derivative (including futures, options or swaps) on behalf of a commodity pool or a managed account. The adoption of the Reporting Requirements follows recent announcements by various futures exchanges and swap execution facilities regulated by the Commodity Futures Trading Commission (CFTC) to offer derivatives on virtual currency products. The NFA pointed to the volatility of the underlying virtual currency products as justification for the new requirements.
Specifically, the Reporting Requirements mandate that:
- Effective December 14, 2017, any NFA member CPO or CTA that executes a transaction involving a virtual currency or virtual currency derivative must notify the NFA by amending the firm-level section of its annual questionnaire at: https://www.nfa.futures.org/electronic-filing-systems/annual-questionnaire.html.
- Beginning in the first calendar-quarter of 2018, NFA member CPOs and CTAs that have executed transactions involving virtual currencies or related derivatives will also be required to report the: (a) number of their commodity pools or managed accounts that have executed one or more transactions involving a virtual currency; and (b) the number of their commodity pools or managed accounts that have executed one or more transactions involving a virtual currency derivative during each calendar quarter.
- Does your firm operate a pool that has executed a transaction involving a virtual currency (e.g., Bitcoin, Ethereum or Ripple)?
- Does your firm operate a pool that has executed a transaction involving a virtual currency derivative (e.g., a futures contract, option or swap)?
- 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?
- 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 futures contract, option or swap)?
NFA member CPOs and CTAs should keep the following key points in mind with respect to these Reporting Requirements:
- The Reporting Requirements apply to all NFA member firms that operate under CFTC Regulations 4.5, 4.7 or 4.13. Additionally, the Reporting Requirements apply to all NFA members, regardless of whether such members are located in the United States and regardless of whether they are trading or holding virtual currency products in the United States.
- The Reporting Requirements apply to virtual currency derivatives, such as the bitcoin futures recently launched by CBOE and CME and soon to be launched on several other exchanges. Similarly, the Reporting Requirements also apply to all other transactions in virtual currencies themselves (e.g., Bitcoin, Ether, BCash, Zcash, XRP, Monero, etc. held either directly or indirectly through a third-party wallet provider). Taken together, this means that trades in instruments or transactions that are not themselves derivatives or “commodity interests,” such as virtual currency spot or forward transactions, will still trigger the new Reporting Requirements, even though such trades would not otherwise be counted under CFTC Regulations 4.5 or 4.13 as “commodity interests” and would not trigger status as a commodity pool.
- The notice component of the Reporting Requirements is “immediate,” so NFA member firms should be prepared to file the notice immediately after they enter into any transaction in virtual currency or virtual currency derivatives.