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CFTC Approves Interpretative Guidance of "Actual Delivery" in Virtual Currency Transactions

The CFTC approved final interpretive guidance concerning the term "actual delivery" for virtual currency retail transactions involving digital assets.

As previously covered, the CFTC reaffirmed its position that a virtual currency is a commodity. This means that leveraged, margined or financed transactions in virtual currencies with non-eligible contract participants (or "non-ECPs") are "retail commodity transactions" subject to CFTC oversight under Section 2(c)(2)(D) of the Commodity Exchange Act. The regulation of retail commodity transactions is subject to a statutory exemption for transactions in which the actual delivery of the commodity occurs within 28 days of the transaction.

In order to prove the "actual delivery" of virtual currency in connection with retail commodity transactions, the interpretive guidance requires a market participant to demonstrate that:

  • a customer has the ability to (i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, by using leverage, or through any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction; and

  • the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) does not retain any interest in or control over any of the commodities purchased on margin, leverage, or other financing arrangements at the expiration of 28 days from the date of the transaction.

Commissioner Statements

CFTC Chair Heath P. Tarbert highlighted the interpretive guidance's effective communication of how actual delivery requirements may apply in certain situations. In addition, Mr. Tarbert stated that he anticipates a 90-day period before the CFTC begins initiating enforcement actions related to the final guidance that may not have been evident in prior guidance.

CFTC Commissioner Brian Quintenz agreed with forbearing from initiating enforcement actions relating to the guidance for 90 days. He also commended the interpretive guidance for striking the "appropriate balance" by protecting against bad actors while allowing for an adaptable regulatory framework for a rapidly developing market.

CFTC Commissioner Rostin Behnam stated that while he voted to approve the interpretive guidance, he called on the CFTC to postpone all non-critical policy work in order to focus exclusively on supporting financial markets during the coronavirus pandemic. Separately, he expressed concern that because the comment period on the proposed guidance closed almost two years ago, the needs of the public may have changed regarding digital assets.

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