New Virtual Currency Reporting Requirements
On December 14, 2017, the National Futures Association (“NFA”) issued a Notice to Members (the “Notice”) requiring each registered commodity pool operator (“CPO”) and commodity trading advisor (“CTA”) to notify NFA immediately if it executes a transaction involving any virtual currency or virtual currency derivative on behalf of a commodity 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.
A CPO or CTA that executes such a transaction must notify NFA by amending the firm-level section of its annual questionnaire, which now includes the following new 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)?
- 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)?
Number of Pools or Managed Accounts
In addition, beginning with the first quarter of 2018, CPOs and CTAs that have executed transactions involving virtual currencies or related derivatives will be 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. This information must be submitted to NFA through the firm’s questionnaire no later than 15 days after the end of a quarter. NFA stated it will issue a separate notice reminding members of this obligation.
Pool Financial Statements (for CPOs)
In a separate Notice to Members on January 18, 2018,2 NFA notified CPOs specifically that it has added two additional yes/no questions regarding virtual currency activities to the annual pool financial statement cover page, which can be accessed through EasyFile (Annual Reports). These changes are effective for pool financial statements as of October 31, 2017 or later (i.e., they are applicable to financial statements filed for pools whose fiscal year end was the end of 2017).
CPOs and CTAs should review their trading practices with relevant personnel to evaluate whether there have been any trades in virtual currency or virtual currency derivatives as contemplated by the NFA reporting requirements and to ensure that they are aware of any such intended trading activity. Notably, the reporting requirements are not limited to virtual currency derivatives trades, but encompass trading of virtual currency itself and apply regardless of the status of a pool or a managed account client as an eligible contract participant.