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From Securities Regulation Daily, January 4, 2018

CFTC moves full steam ahead with 2018 virtual currency activities

By Brad Rosen, J.D.

CFTC Chairman J. Christopher Giancarlo and the commission are wasting no time in moving forward with an aggressive virtual currency related agenda for 2018. The chairman announced that the Market Risk Advisory Committee (MRAC) will be meeting on January 31st to specifically consider the hot topic of self-certification of new products. This meeting will follow the Technology Advisory Committee (TAC) meeting scheduled for January 23rd where market developments around virtual currencies will be considered. Contemporaneously, the commission also issued a backgrounder on its oversight of and approach to virtual currency futures markets.

Among federal regulators, Chairman Giancarlo has spoken with a decisive, clear and distinct voice with respect to the rapidly expanding cryptocurrency markets. He noted, "[o]ne thing is certain: ignoring virtual currency trading will not make it go away. Nor is it a responsible regulatory strategy. The CFTC has an important role to play. The CFTC seeks to promote responsible innovation and development that is consistent with its statutory mission to enhance derivative trading markets and to prohibit fraud and manipulation in connection with commodities in interstate commerce."

MRAC and TAC. Both the MRAC and TAC meetings will garner significant attention from futures industry watchers, as well as from those in the cryptocurrency communities. The MRAC meeting represents one of the first major initiatives from Rostin Behnam, the newest member to join the commission and the committee’s designated sponsor. Behnam stated, "[w]ith the rapid development of financial technology products—including cryptocurrencies—and the corresponding demand for new and novel price discovery and risk management tools, the CFTC is poised to utilize its authority and expertise to ensure that the markets we oversee innovate responsibly within an appropriate oversight framework."

The meeting comes at an opportune time, as it will consider the process of self-certification of new products and operational rules by Designated Contract Markets (DCMs). The self-certification process played a key role in the rollout of futures contracts at the CME and CBOE Futures Exchange (CFE) in December of 2016. In the aftermath of those product launches, that self-certification process was questioned and criticized by the FIA in an open letter to Chairman Giancarlo. Although the self-certification process remains a topic of some controversy within the industry, Commissioner Behnam observed, "I believe this is a perfect time for the MRAC to discuss the application of the CFTC's self-certification process in today's quickly evolving, technology driven marketplace."

The TAC meeting on January 23rd will also attract interest. The committee has been dormant for some time and is being revived under the sponsorship of Commissioner Brian Quitenz. That meeting will also consider related challenges, opportunities, and market developments surrounding virtual currencies.

CFTC Backgrounder. The CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets is intended to provide additional clarity with regard to the following:

  • federal oversight of and jurisdiction over virtual currencies;
  • the CFTC’s approach to regulation of virtual currencies;
  • the self-certification process generally, as well as the recent self-certification of new contracts for bitcoin futures products by designated contract markets (DCMs);
  • background on the CFTC’s "heightened review" for virtual currency contracts; and
  • a discussion of the constituencies the CFTC believes could be impacted by virtual currency futures.

In his concluding remarks, Chairman Giancarlo observed, "[t]he responsible regulatory response to virtual currencies is consumer education, asserting CFTC authority, surveilling trading in derivative and spot markets, prosecuting fraud, abuse, manipulation and false solicitation and active coordination with fellow regulators. The CFTC has been following this course of action and will continue to do so."

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