Virtual Currency Activity of NFA Members Are Closely Monitored, Though Modest

  • The reporting by NFA members is required on a quarterly basis.
  • Even though activity regarding virtual currency products must be reported, there has been limited activity to report.

The use of virtual currencies is often a personal decision, but involvement in the industry is a concern for individuals that work in the traditional financial world.

The United States National Futures Association (NFA), for example, recently created its annual report, showing exactly how its members are involving themselves in virtual currencies. The report covers the fiscal year 2019, which covers the time from July 1st, 2018 to June 30th, 2019.

During the year, the NFA set up a process that allows the regulatory programs of the NFA to handle the current challenges in the market, like cybersecurity and virtual currencies. In doing so, a new Interpretive Notice, which established requirements for members and their disclosure regarding virtual currency.

Derivatives on virtual currency products were launched by multiple CFTC-regulated venues in December 2017, which included Bitcoin.

The NFA is concerned that the customers do not have a complete understanding of the way that they put themselves at risk with virtual currencies and virtual currency derivatives, including the risk of loss with volatility.

With these matters in mind, the NFA chose to establish the Interpretive Notice, which is called, “Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities.” The notice went into effect in October 2018.

There are disclosure requirements outlined within the Interpretive Notice, which are applicable for FCMs, IBs, CPOs, and CTAs that are involved with virtual currencies or their derivatives. In those requirements, any FCM or IB Member will need to offer their virtual currency derivative customers with two notices, Investor Advisory, Futures on Virtual Currencies Including Bitcoin (NFA) and Customer Advisory: Understand the Risks of Virtual Currency Trading (CFTC).

According to the Interpretive Notice, investors associated with CPO and CTA Members must be given in-depth disclosure regarding the activities that they engage in with spot market virtual currencies and their derivatives. Since virtual currencies are so volatile, each CPO and CTA is also required to let the NFA known whenever they perform a virtual currency or derivative transaction, when performing these activities for a pool or a managed account.

Any CPO or CTA to perform transactions with virtual currencies or derivatives also has to report how many of their accounts or pools performed at least one transaction. In the same respect, IBs also have to report their number of accounts that perform these same transactions, if they solicit or accept orders involving virtual currency derivatives. These reports must be turned in on a quarterly basis.

By implementing these reporting requirements, the NFA is able to monitor the activities of their members, regarding virtual currencies. However, the Association notes that the actual involvement in these activities have been relatively modest, according to reports from Finance Feeds.

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