On December 20, the CFTC issued its proposed interpretation of the term “actual delivery” in the
context of how it expects to regulate retail virtual currency contracts. The deadline for public comment on the proposal is March 20, 2018. This is important because the CFTC’s interpretation will determine whether a retail customer transaction on a virtual currency exchange will be subject to or exempt from regulation by the CFTC.
Congress has empowered the CFTC to regulate a variety of commodity instruments, including “retail commodity transactions”, except for contracts of sale that result “in an actual delivery within 28 days” of the date of the contract. The CFTC has also previously asserted that virtual currencies are commodities, and in its June 2016 Bitfinex consent order, the CFTC found that the virtual currency platform violated the CEA because it did not register as an exchange even though the virtual currency traded was not actually delivered within 28 days, and so ineligible for an exception to the regulation requirement. (Since virtual currencies are typically held in an online “wallet”, no “delivery” of the currency ever takes place; as a result, the exception for “delivered” commodities has not been available in this context.)
In issuing the proposal, the CFTC is explaining to the public how it plans to determine whether “actual delivery” has occurred in the context of a virtual currency contract offered to retail investors (meaning those that don’t fit within the terms “eligible contract participant” and “eligible commercial entity”), and to invite the public to comment on issues resulting from that determination.
According to the Commission, it expects that the critical features of “actual delivery” in the context of virtual currencies are
• that the forex customer has the ability to take possession and control of the entire
quantity of the virtual currency, regardless of whether purchased on margin, with
leverage, or any other financing arrangement, within 28 days from the date of the
transaction;
• that the offeror and counterparty seller (including their affiliates and associates) do not
retain any interest in or control over any of the commodity purchased on margin, with
leverage, or any other financing arrangement, after 28 days have elapsed from the date
of the transaction; and
• actual physical settlement of the commodity must occur (and cash settlement or offset
is not adequate for this purpose).
As noted above, the Commission has invited comments to be submitted to it no later than March 20, 2018.
If you have any questions about the CFTC’s proposed interpretation, would like to learn more about the specific concerns and considerations motivating the proposal, or if you would like to submit a comment to the CFTC, please contact me at the address below.
This publication should not be considered as legal opinions on specific facts or as a substitute for legal counsel. It is provided by the Law Office of John P. Ziaukas, for general information purposes and may be considered attorney advertising in some jurisdictions. All rights reserved. © 2017 John P. Ziaukas.