NFA Announces Set of New Disclosure Requirements for Virtual Currencies

The National Futures Association (NFA) announced on Thursday that it would be adopting new disclosure requirements for firms that engage in virtual currency activities. From October 31, 2018, members of the US-based regulator will need to disclose certain information such as outlining the risks of investing in Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term.

The new disclosure requirements will apply to futures commission merchants (FCM), introducing brokers (IB), commodity pool operators (CPO) and commodity trading advisors (CTA). It is necessary for firms to meet these requirements if they engage in activities related to cryptocurrencies and crypto derivatives.

The upcoming requirements are based on an interpretive notice. This was decided on May 17, 2018, by the watchdog’s Board of Directors. As the virtual currency market attracts more investors, the NFA has grown concerned over their safety, according to the notice.

Specifically, the regulator believes investors might not completely understand the nature of the assets. It also highlights that traders may not be aware of the risks of investing in cryptocurrencies and might not comprehend the NFA’s limited oversight role.

New NFA requirements for FCM and IB

From October, FCM and IB members will be required to give customers who trade virtual currency derivatives two advisory notices. These must be given at or before the time they trade the asset. The two notices are the NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin and the CFTC Customer Advisory: Understand the Risks of Virtual Currency Trading.

In addition, if a customer has traded a cryptocurrency derivative through the firm before the October deadline, the company must still provide these advisories to them before November 30, 2018. If an FCM or IB allows investors to trade spot market virtual currencies, then from October, they must provide clients with a standardized disclosure warning. The wording for the disclosure warning can be found on the NFA’s website.

CPO and CTA requirements

The requirements for CPO and CTA members are a lot more extensive. These firms will need to provide in-depth disclosures to clients in regards to their pools, exempt pools or trading programs.

These companies will also need to provide a standardized disclosure to customers who clearly explains the NFA’s limited oversight of spot market virtual currencies. This disclosure is the same as what is required of FCM and IB.

Furthermore, the watchdog has outlined key areas where CPO and CTA must disclose certain information if they apply to their activities. This information must be in their disclosure documents, offering documents or promotional materials.

These areas are Unique Features of Virtual Currencies, Price Volatility, Valuation and Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, Cybersecurity, Opaque Spot Market, Virtual Currency Exchanges, Intermediaries and Custodians, Regulatory Landscape, Technology, and Transaction Fees.