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CFTC Provides New Guidance for Digital Currency Exchanges

Financial Regulation

CFTC Provides New Guidance for Digital Currency Exchanges

The US Commodities Future Trading Commission (CFTC) released a statement today (Monday, May 21st) regarding “Advisory for Virtual Currency Products.” In previous hearings Blockchain Beach covered, exchanges were clearly in the crosshairs in regards to regulation.

Today’s advisory document chose to focus on giving guidance to exchanges looking to list digital currency products, so that they can self regulate, prior to the CFTC having to get involved in a negative way:

“The CFTC staff is committed to providing regulatory clarity as much as possible,” said DMO Director Amir Zaidi. “As the virtual currency market continues to evolve, CFTC staff will seek to provide additional guidance to help market participants keep pace with innovation while complying with CFTC regulations.”

“CFTC staff is providing this information, in part, to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products,” DCR Director Brian Bussey stated. “In addition, the guidance is designed to help ensure that market participants follow appropriate governance processes with respect to the launch of these products.”

There were a few key areas that were highlighted as general categories for exchanges to focus on:

  • Enhanced market surveillance
  • Close coordination with CFTC staff
  • Large trader reporting
  • Outreach to member and market participants
  • Derivatives Clearing Organization risk management and governance

To date, CFTC Chairman Giancarlo has made favorable statements in regards to digital currency markets, including that “(We) owe it to this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one.”

Today’s advisory doubled down on that statement saying:

“The guidance announced today is another effort to ensure the CFTC is exercising appropriate oversight, while encouraging innovation and growth in these products.”

It will be interesting to see which aspects of the Blockchain industry end up falling under the regulatory jurisdiction of the CFTC. They used the final paragraph of this advisory to try and define the scope and scale of their efforts:

“In 2015, the CFTC found virtual currencies such as Bitcoin to be commodities subject to oversight under its authority under the Commodity Exchange Act (CEA). Since then, the CFTC has taken action against unregistered Bitcoin futures exchanges; enforced the laws prohibiting wash trading and prearranged trades on a derivatives platform; issued proposed guidance on what is a derivative market and what is a spot market in the virtual currency context; issued warnings about valuations and volatility in spot virtual currency markets; and addressed a virtual currency Ponzi scheme.”

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