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New NFA Requirements for CPOS and CTAS Regarding Cryptos

Over the past year, cryptos like Bitcoin, Litecoin, Ethereum, and more have become a massively profitable asset class attracting institutional and retail investors alike. However, due to their rapid integration into the markets, the regulatory framework for cryptos is still in the process of being shaped by regulatory entities worldwide. In response, on July 20, the National Futures Associates (NFA) published Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities. This communication lists a series of items that all Commodity Pool Operators (CPOs) and Commodity Trade Advisors (CTAs) must disclose if they intend to market any virtual currencies to both institutional and retail investors alike, with the key areas addressed being:

  1. Unique features of virtual currencies
  2. Price volatility of virtual currencies
  3. Valuation and liquidity of virtual currencies
  4. Cybersecurity
  5. Opaque spot markets
  6. Virtual currency exchanges
  7. Intermediaries and custodians
  8. Regulatory landscape
  9. Technology
  10. Transaction fees

Although the NFA is performing market regulation services on behalf of certain futures exchanges and swap execution facilities, investors should still remain aware. Despite virtual currencies, including Bitcoin, being traded on regulated futures exchanges, the NFA stresses such scenarios do not imply that underlying virtual currency markets are being regulated in any way or form.

Crypto investment advisors that have recently incorporated should be aware that given their predominant asset class, they must not only comply with the disclosure requirement above but also potentially file Form PQR as they would be categorized as Commodity Pool Operators from a regulatory standpoint.

Our SS&C Regulatory Solutions team is here to help your organization meet reporting requirements with minimum cost and disruption.

Sources:

[1] NFA Investor Advisory—Futures on Virtual Currencies Including Bitcoin – December 1, 2017

[2] RIN 3038—AE62: Retail Commodity Transactions Involving Virtual Currency – March 202018

[3] National Futures Association: Proposed Interpretive Notice: Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities – July 20, 2018

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