As readers of our blog are aware, courts and regulators are playing catch-up when it comes to cryptocurrencies, and to interpreting existing laws and regulations as applied to these new and innovative offerings. One of these many important questions relates to whether virtual currencies are “commodities” within the meaning of the Commodity Exchange Act (CEA) and subject to regulation by the Commodity Futures Trading Commission (CFTC). A recent ruling by a US district court in Massachusetts held that a virtual currency (My Big Coin) is a commodity within the meaning of the CEA and is therefore subject to the anti-fraud authority of the CFTC, even though there currently is no futures contract on My Big Coin. My Big Coin is a Las Vegas-based creator of software that purportedly allows for the anonymous exchange of currency.
Last Friday, the US Securities and Exchange Commission (SEC) issued a notice stating that, effective in less than 70 days (July 31), broker-dealers will no longer be able to engage in leveraged foreign exchange (forex or FX) business with persons other than “eligible contract participants” as defined in Section 1a(18) of the Commodity Exchange Act (CEA), including those that are dually registered with the US Commodity Futures Trading Commission (CFTC) as Futures Commission Merchants (FCMs). What this effectively means is that only standalone CFTC registered and National Futures Association (NFA) member FCMs or retail FX dealers, as well as certain banks, may serve as counterparties in retail forex transactions.