NFA Prompts Its Members to Comply with Disclosure Obligations on Virtual Currency Trading

As the virtual currency market keeps growing dramatically, a large number of investors are being attracted. The U.S National Futures Association (NFA) recently prompted its members engaging in virtual currency activities to fully comply with existing disclosure obligations.

The highly volatile virtual currencies bring about potentially significant risks. NFA showed concerns that investors may face the risk of substantial loss arising from such trading if they do not possess full knowledge of such nature. To address the concerns, a set of new requirements regarding disclosure was rolled out in 2018, the Notice on the Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities.

Section I is applicable to future commission merchants (FCMs) and introducing brokers (IBs), while Section II is applicable to commodity pool operator (CPO) and commodities trading adviser (CTA).

As required by the Notice, FCMs and IBs shall provide the Advisory, "the NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin and the CFTC Customer Advisory: Understand the Risk of Virtual Currency Trading", to any one who wishes to engage in virtual currency derivative trading through them.

It is to NFA's understanding that some FCMs and IBs are seeking to process transactions involving underlying or spot virtual currencies. The association requires all FCMs and IBs who have such intention to fully disclose about the lack of NFA's regulation on underlying or spot transactions and provide customers with a specific warning.

For retail customers, the advisories and disclosure language shall also be sent to them in a booklet or an e-mail.

All advisories and warnings shall be delivered to a customer before he / she engages in transactions.

Certain CPOs and CTAs are offering pools and trading programs that trade virtual currencies and derivatives. To fully achieve customer awareness regarding the nature of the products and substantial risk of loss, CPOs and CTAs are advised to offer materials to explicitly address the related risks.

Besides, any CPO or CTA member operating a pool or trading program that trades underlying or spot virtual currencies is mandated to display a standardized disclosure about the lack of NFA's regulation.

Another standardized disclosure is, too, required to be provided to customers and displayed if a CPO or CTA is engaged in any other virtual currency activities.