CFTC Proposes Rule on Virtual Currency “Actual Delivery” in Retail Transactions

virtual currency

The Commodity Futures Trading Commission has proposed a legal interpretation of its authority over retail commodity transactions involving virtual currencies like Bitcoin. The proposal details the conditions under which the retail trading of such currencies would not have to comply with the agency’s rules.

More specifically, “The Proposed Interpretation sets out the CFTC’s view regarding the ‘actual delivery’ exception that may apply to virtual currency transactions,” according to the agency.

Retail commodity transactions are subject to the Commodity Exchange Act “as if” they were commodity futures. The statute includes an exception for contracts of sale that result in “actual delivery” within 28 days from the date of the transaction.

The CFTC’s proposal would establish two primary factors necessary to demonstrate “actual delivery” of retail commodity transactions in virtual currency:

First, “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

Second, “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) [is] 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.”

Some market observers anticipate the proposal will increase the number of virtual currency operators that fall under the CFTC’s authority. And that means the proposal probably will result in more enforcement actions against operators who may expose investors to excessive risk. Interested parties have until March 20, 2018, to submit comments to the agency.

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