NFA Proposes Interpretive Notice Mandating New Virtual Currency Disclosures

by Morgan Lewis

Morgan Lewis

The National Futures Association’s proposed virtual currency disclosure requirements would be applicable to futures commission merchant, introducing broker, commodity pool operator, and commodity trading advisor member firms. In its interpretive notice, NFA expressed concerns about whether customers fully understand the valuation issues, lack of regulatory oversight, and substantial risk of loss associated with virtual currencies.

The National Futures Association (NFA) has proposed new disclosures applicable to futures commission merchants (FCMs), introducing brokers (IBs), commodity pool operators (CPOs), and commodity trading advisors (CTAs) that could require firms to repaper existing disclosure documents, offering documents, and promotional materials. NFA’s concerns regarding CPO and CTA member firms’ activities in virtual currencies arise out of several issues unique to those instruments. For example, virtual currency derivatives may experience significant price volatility with the potential for their initial margin requirements to increase without warning. Additionally, FCMs and designated contract markets may impose rules that limit market participants’ ability to exit positions during periods of high volatility. FCMs may require additional margin, impose position limits, or prohibit naked shorting or give-in transactions with regard to virtual currency derivatives. These and other features unique to virtual currency derivatives motivated NFA’s decision to require the new disclosures.

In addition, it is clear from the interpretive notice that NFA is concerned that market participants may not fully understand the nature of virtual currencies and virtual currency derivatives, the substantial risk of loss that may arise from trading these products, or the limitations of NFA’s regulatory authority over spot market virtual currencies (primarily due to a lack of a centralized pricing source and limited price discovery). NFA recognizes that the requirements contained in the interpretive notice may need to evolve over time in order to keep pace with advancements in the virtual currency space, explicitly stating that the interpretive notice may be supplemented in the future.

One of the new prescribed disclosures relates to the lack of NFA’s regulatory oversight over spot virtual currency products and virtual currency exchanges, custodians, or markets. The prescribed disclosure, applicable to FCMs, IBs, and CPOs and CTAs (for spot market virtual currency activities not including investments in a pool or managed account program), reads as follows:


CPOs and CTAs would be subject to a different prescribed disclosure when they engage in an underlying spot virtual currency transaction in a pool, exempt pool (i.e., a pool offered pursuant to CFTC Regulation 4.7), or managed account program. The prescribed disclosure includes the language regarding lack of NFA oversight authority, discussed above, along with certain risks central to virtual currencies. The prescribed disclosure for these types of pools (whether exempt or nonexempt) and managed accounts must be included in disclosure documents and offering documents and be prominently displayed in promotional materials related to CPOs’ and CTAs’ activities in virtual currencies at or before the time the CPO or CTA engages in such activity. The disclosure reads as follows:


Risk Disclosure Topics for Pool and Managed Account Programs

It is our experience that CPOs and CTAs that are engaged in underlying or spot virtual currency transactions in pools and account programs already include risk disclosures about virtual currency products in offering memoranda. However, NFA has now made the inclusion of such risk disclosures a requirement and provides a nonexhaustive list of the types of disclosures that a CPO or CTA should consider including, as applicable, in its disclosure documents, offering documents, and promotional materials. As such, CPOs and CTAs should include these disclosures to the extent they do not already do so and, to the extent they do, augment and increase the visibility of existing disclosures. NFA explains that the guidelines with respect to virtual currency disclosure contained in the interpretive notice are nonexhaustive, there is not a one-size-fits-all approach, and a CPO or CTA may need to address other topics relevant to trading virtual currencies as appropriate to the activities undertaken on behalf of the pool or managed account. NFA does not prescribe specific language for these disclosures, which include the following:

  • Unique Features of Virtual Currencies
    • Virtual currencies are not legal tender in the United States and therefore have questionable intrinsic value.
    • Price is often based on an agreement by the parties to the transaction.
  • Price Volatility
    • Price is based on perceived value and is subject to changes in sentiment.
    • In some cases, virtual currencies experience daily volatility of 20% or greater.
  • Valuation and Liquidity
    • Virtual currencies are traded both privately and through virtual currency exchanges, meaning there is no centralized pricing source.
    • CPOs and CTAs must tailor their policies and procedures used to value virtual currency products to consider the liquidity and volatility of these markets.
    • Specifically, CPOs and CTAs should explain to customers (1) the valuation and liquidity risks involved and (2) the valuation procedures used.
  • Cybersecurity
    • “Wallets” and spot exchanges are susceptible to hacking.
    • Publicly distributed ledgers may not be immutable.
    • Even minor cybersecurity events can bring about immediate and irreversible losses for participants.
  • Opaque Spot Market
    • Unlike banks or brokerage accounts, virtual currency exchanges and custodians holding virtual currency do not always identify the owner, creating asset verification challenges and an increased potential for manipulation/fraud.
  • Virtual Currency Exchanges, Intermediaries, and Custodians
    • Entities that facilitate virtual currency transactions are new and largely unregulated.
    • The lack of regulatory oversight as well as the dangers attendant to the opaque spot market create the risk that a virtual currency exchange may not hold enough virtual currency to satisfy its obligations at a particular time, and such inability may not be readily apparent.
    • Virtual currency exchanges may have higher operational risk than regulated exchanges.
  • Regulatory Landscape
    • Currently, no federal regulatory oversight for virtual currency exchanges exists in the United States.
      • However, some of these exchanges may be regulated by state regulators.
      • The CFTC currently regulates virtual currency derivatives.
      • The Securities and Exchange Commission (SEC) has stated that many ICOs constitute securities offerings subject to the federal securities laws.
      • Jurisdictions could adopt laws in the future that would affect virtual currency networks, issuers, prices, and the acceptance of such networks.
  • Technology
    • Owners of virtual currencies cannot access, use, or transfer them without a unique private key, the loss, theft, or destruction of which may be irreversible.
    • If a virtual currency exchange doesn’t allow customers to participate in a fork that creates a new product, there could be an adverse impact on those customers.
  • Transaction Fees
    • Many virtual currency transactions engage a third-party “miner” who accepts a fee. These fees are subject to market dynamics and could increase substantially.
    • Custodians involved in virtual currency transactions may charge higher fees than custodians in other financial markets.

Other Disclosure Requirements for FCMs and IBs

In addition to the disclosure above, FCMs and IBs will be required to provide to any customer that engages in a virtual currency derivative transaction with or through that FCM or IB the NFA Investor Advisory, Futures on Virtual Currencies Including Bitcoin, and the CFTC Customer Advisory, Understand the Risk of Virtual Currency Trading.

This requirement will apply retroactively, requiring an FCM or IB to provide these advisories to customers who engaged in a virtual currency transaction before the issuance of the NFA interpretive notice within 30 days of the date of the interpretive notice. Otherwise, the disclosure and advisories must be provided at or before the time the customer first engages in a virtual currency transaction (with regard to all customers). For introduced accounts, either the FCM or the IB may provide the advisories and disclosure to customers.

The requirements for delivery of these advisories and the prescribed disclosure differ between eligible contract participants (ECPs)[3] and retail clients. An FCM or IB may provide the advisories and disclosure to ECPs through its website. However, for retail clients, the advisories and prescribed disclosure must be delivered either in writing, or if electronically, in a prominent manner ensured to capture the customer’s attention. Delivery via email containing links to the FCM’s or IB’s website is acceptable, but merely posting the advisories and disclosure language on the website of the FCM or IB would be insufficient. The FCM or IB will need to affirmatively direct the customer to the advisories and prescribed disclosure.

Practical Implications

Beyond the practical burden of repapering offering documents and promotional materials, it remains to be seen whether the new disclosure requirements will raise additional concerns for those who are also subject to the SEC’s oversight and compliance with the federal securities laws. To date, the SEC has not permitted a fund registered under the Investment Company Act and/or the Securities Act of 1933 to offer interests in either physical or derivatives-based virtual currency pools. As a result, only privately offered funds are able to offer these strategies currently. The new disclosure requirements could potentially expose these funds to greater liability under the federal securities laws for shortcomings in the adequacy or completeness of such disclosures. While it is unclear whether the SEC will take action similar to that taken by NFA, public statements by the SEC and its staff to date make it clear that the SEC shares many of NFA’s concerns about whether customers fully understand the valuation issues, lack of regulatory oversight, and substantial risk of loss associated with virtual currencies. Moreover, NFA reminded its members to consider Compliance Rule 2-29 (prohibiting misleading or deceptive promotional materials) when communicating to the public about virtual currencies.


[1] NFA Compliance Rule 2-22 prohibits a CPO or CTA from, among other things, stating or implying that such party’s activities have been sponsored, recommended, or approved by NFA.

[2] As indicated in the interpretive notice, any failure to follow the disclosure guidelines may (1) be treated as a violation of NFA Compliance Rule 2-29 and (2) be deemed to be conduct inconsistent with a CPO’s or CTA’s obligations under NFA Compliance Rule 2-4, which requires member firms to observe high standards of commercial honor and just and equitable principles of trade.

[3] Section 1a(18) of the CEA (7 U.S.C. § 1a(18)); 17 C.F.R. § 1.3.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.