In response to a perceived gap in regulating the cryptocurrencies, particularly after the CBOE began offering futures contracts earlier this week, the CFTC issued a proposed interpretation concerning its authority over retail transactions involving Bitcoin and similar cryptocurrencies.
The proposed interpretation provides guidance on how the CFTC will apply the “actual delivery” exception to its jurisdiction over crypto transactions.
Section 2(c)(2)(D) of the Commodity Exchange Act (CEA) granted the CFTC broad jurisdiction over retail commodity transactions, including those that take the form of leveraged or margined contracts. As such, the CFTC’s jurisdiction is implicated when a virtual currency is used in a derivatives contract, or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.
Beyond these instances, the CFTC does not oversee spot or cash transactions involving virtual currencies that do not utilize margin or leverage.
Today’s proposed interpretation by its terms addresses only the “actual delivery” exception to the crypto transactions and not any other exception. More importantly, it does not address the meaning or scope of commodity futures which are subject to the Commodity Exchange Act (CEA).
The CFTC’s proposed interpretation has set two primary elements that clarify if and when such a contract could be ‘actually delivered’, and thus included under its direct oversight authority over retail commodity transactions. The regulator has stated the two intended factors as following:
(1) a customer having 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
(2) 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) not retaining 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.
LabCFTC, the CFTC’s fintech initiative to help technology firms navigate regulations, has previously published some guidelines on cryptocurrency, particularly those related to the agency’s engagement and exposure over the asset class.
After a detailed introduction to the digital currencies and its specifications, the primer proceeds to highlight the CFTC’s attitude toward the asset class, which was first defined as commodities in 2015. As such,
On a related note, the CFTC has launched a dedicated web page, cftc.gov/bitcoin, which provides essential knowledge about digital currencies and also to serve as a guide to using its innovations. However, the watchdog said that these educational resources are only intended to bring clarity to the regulatory approach to ICOs and virtual currencies but they don’t describe the CFTC’s official policy.