The National Futures Association (NFA), the US self-regulatory organization for derivatives markets, has published a new compliance standard that addresses member conduct. The new standard complements the requirements published in 2018.
The NFA has “well over 100” members who engage in digital asset commodity activities, but there is no way to address fraud or misconduct committed by those members, explained the organization to the secretary of the Commodity Futures Trading Commission (CFTC), Christopher Kirkpatrick, in a February 28 letter, submitting the proposed new rule for approval.
The new rule is modeled after the NFA’s anti-fraud rules for exchange traded futures and swaps and retail foreign exchange transactions. The NFA is the only registered self-regulatory organization that has delegated authority from the CFTC, giving it a status analogous to FINRA with the Securities and Exchange Commission.
The NFA currently only imposes disclosure requirements on its members who engage in one-off digital asset commodity activities with digital assets, which are detailed in a single document. When the new rule goes into effect on May 31, members will be subject to guidelines on fraud, trading principles and employee supervision. The rule applies only to Bitcoin (BTC) and Ether (ETH), as only they “have commodity-related interests certified by an entity registered to trade under Part 40 of the CFTC Regulations.”
@CFTCpham applauds the National Futures Association (CFTC-designated SRO for derivatives industry) for establishing supervision and disclosure requirements for the trading of digital commodities.
✅ Importantly, the NFA (and Pham) reinforce ETH’s https://t.co/uu0Vc3WD7F…
—Alexander Grieve (@AlexanderGrieve) March 31, 2023
CFTC Commissioner Caroline Pham released a statement praising the new rule:
“This is a clear example of using existing authority to ensure there are customer protections, because NFA registration requires businesses and individuals to comply with NFA rules.”
The NFA “may modify this rule in the future to include other digital asset commodities” in addition to BTC and ETH, Pham added. He noted that the NFA’s foreign exchange rules preceded the CFTC’s authority by Congress to regulate that market by five years. “I think it’s common sense to start with what we have and what works to expand our regulatory framework on digital asset commodity spot markets,” added.
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