On Dec. 14, 2017, the National Futures Association distributed a notification requiring each commodity pool operator and commodity trading advisor to immediately notify the NFA if it has executed a transaction involving a virtual currency or virtual currency derivative for a client. This notification is done via an interim update to the annual questionnaire.
New Disclosures. The following questions have been added to the firm-level section:
- Does your firm operate a pool that has executed a transaction involving a virtual currency (g., Bitcoin)?
- Does your firm operate a pool that has executed a transaction involving a virtual currency derivative (g., a Bitcoin future, option or swap)?
- Does your firm offer a trading program for managed account clients (other than a pool you reported under the CPO questions) that has engaged in any transaction involving a virtual currency (e.g., Bitcoin)?
- Does your firm manage an account (other than a pool you reported under the CPO questions) that has executed a transaction involving a virtual currency derivative (g., a Bitcoin future, option or swap)?
Beginning with the first quarter of 2018, CPOs and CTAs will also be required to report, on a quarterly basis, the number of pools or managed accounts that entered into transactions involving (i) a virtual currency or (ii) a virtual currency derivative. This information must be submitted no later than 15 days after the end of each quarter.
Next Steps. Managers should review their existing client portfolios to determine if there are any virtual currency positions that would be responsive to the NFA request. They should also (i) confirm whether there has been prior trading or investment in these categories of instruments and (ii) require advance notice from the investment and trading personnel prior to engaging in trading in virtual currencies and virtual currency derivatives.
If you have any questions concerning this Alert, please contact your attorney at Schulte Roth & Zabel or the authors.
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