For purposes of Rule 2-51, “digital asset commodity” or “digital asset commodities” mean Bitcoin and Ether.3 While the Commodity Futures Trading Commission (“CFTC”) has identified additional digital assets as commodities, NFA has not included them within the definition of the Rule.4 If and when NFA identifies additional digital assets as commodities, the Rule may be amended to include such additional digital assets.5
Interpretive Notice 9073, issued in 2018, requires certain disclosures be provided to investors that underscore the nature of virtual currencies and virtual currency derivatives and the risk of loss that may arise by trading them.6 Prior to Rule 2-51, Interpretive Notice 9073 was the NFA’s primary rule or notice related to regulating digital asset activities in the spot markets.
CFTC Commissioner Caroline D. Pham praised the NFA’s enactment of Rule 2-51 and its imposition of detailed disclosure obligations on offering and promotional materials so that investors are fully informed before making any trading decisions in Bitcoin or Ether.7 Commissioner Pham noted that Rule 2-51 will allow NFA to enforce market conduct rules, which is one of the key fundamentals for regulating the digital asset market.8
The Financial Industry Regulatory Authority (“FINRA”) and NFA recently conferred and agreed to expand the self-regulatory organizations’ (“SROs”) Memorandum of Understanding to address information sharing and collaboration regarding digital assets, blockchain developments and associated regulatory risks.9 FINRA and NFA’s partnership is intended to further the respective SROs’ mandates and better serve the investing public with respect to digital asset products and asset classes by leveraging their shared expertise.10
NFA Compliance Rule 2-51
Fraud and Related Matters
No Member or Associate engaging in activities involving any digital asset commodity shall:
- Cheat, defraud, or deceive, or attempt to cheat, defraud or deceive any other person involved in those activities;
- Make a communication related to a digital asset commodity that operates as a fraud or deceit; employs or is part of a high-pressure approach; or makes any statement that trading in digital asset commodities is appropriate for all persons;
- Willfully make or cause to be made a false report, or willfully enter or cause to be entered a false record in or in connection with any transaction involving a digital asset commodity;
- Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any digital asset commodity;
- Engage in manipulative acts or practices regarding the price of any digital asset commodity; or
- Embezzle, steal, or purloin, or knowingly convert to its own use or the use of another, any money, securities, digital assets or other property received from or accruing to any person in connection with a transaction involving a digital asset commodity.
Just and Equitable Principals of Trade & Supervision
With respect to digital commodities activities, Members must diligently supervise its employees and agents for or on behalf of the Member and Associates who supervise Members activities must diligently exercise such duties. Rule 2-51 also requires Members and their Associates to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business involving any digital asset commodity.
Disclosure and Related Matters
Rule 2-51 mandates compliance with NFA Interpretive Notice 9073.11 Interpretive Notice 9073 sets out certain disclosure obligations for futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisors engaging in virtual currency derivatives and transactions.12
NFA Members and Associates are encouraged to carefully review the disclosure obligations under both Interpretive Notice 9073 and Rule 2-51.