National Futures Association Repeals Virtual Currency and Virtual Currency Derivative Disclosure Requirements, Expands Others

Effective immediately, the National Futures Association (NFA) has (i) repealed NFA Interpretive Notice 9073: Disclosure Requirements for NFA Members Engaging in Virtual Currency Activities (the Notice) and (ii) amended NFA Compliance Rule 2-51 (Rule 2-51) to expand its scope and to remove cross-references to the Notice.

What Is Changing

Interpretive Notice 9073 repealed. Adopted in 2018, the Notice imposed disclosure obligations on NFA member (a) futures commission merchants (FCMs) and introducing brokers (IBs) involved in spot or derivative virtual currency transactions and (b) commodity pool operators (CPOs) and commodity trading advisors (CTAs) offering pools (exempt or non-exempt) or trading programs that trade virtual currency or virtual currency derivatives. These disclosure obligations were triggered by any amount of virtual currency or virtual currency derivative activity, regardless of the materiality of the firm’s in-scope activity.¹

Among other things, the Notice required CPOs and CTAs to include standardized legends in their offering and marketing materials stating the limits of NFA’s jurisdiction over virtual currency trading and to address a number of categories of risks associated with trading virtual currency. The Notice also required NFA member CPOs and CTAs to disclose the risks associated with the “unique features” of virtual currency derivatives and to explain the impact of these risks on a pool or managed account program’s performance.

The foregoing requirements often led to voluminous disclosures that were out of proportion to the actual risks associated with firms’ virtual currency and virtual currency derivatives activities.

In repealing the Notice, NFA explained that “the disclosure language regarding NFA’s limited jurisdiction was no longer accurate given NFA Compliance Rule 2-51” (see below). NFA also noted that “the list of risk associated with digital commodities continues to evolve and … the list set forth in the [Notice] should be further evaluated.”

Rule 2-51 scope expanded. In 2023, NFA issued Rule 2-51, which imposes anti-fraud, just and equitable principles of trade, and supervision requirements on NFA member firms and their associated persons (APs) engaging in activities involving “digital asset commodities.” Unlike the Notice, which applied to all “virtual currencies” and “virtual currency derivatives,” Rule 2-51 applied only to digital asset commodities, which the rule defined solely as Bitcoin (BTC) and Ether (ETH). As amended, Rule 2-51 now applies to any digital asset commodity that has a “related” commodity interest product listed for trading on a CFTC-regulated trading facility. As derivatives related to digital assets other than BTC and ETH are listed for trading on CFTC-regulated trading facilities, Rule 2-51 will automatically expand in scope to capture the digital assets related to those derivatives.

Reference to the Notice removed from Rule 2-51. NFA has deleted the cross-references in Rule 2-51 to the now-repealed Notice.

What Hasn’t Changed

Core obligations and prohibitions under Rule 2-51 remain. NFA members and their APs engaged in digital asset commodity activities remain subject to anti-fraud, just and equitable principles of trade, and supervision obligations and prohibitions. Rule 2-51 is described in more detail in our previous Sidley Update on this topic.

Disclosure expectations continue. Repeal of the Notice does not relieve NFA members of their obligations to disclose the material risks of digital assets in their offering and marketing materials. For example, Part 4 of the CFTC’s regulations and NFA Rule 2-29 require members to provide certain material disclosures in their offering and marketing materials. NFA also has previewed that it likely will propose new disclosure requirements related to digital assets after consulting its member advisory committees and affected members.

Key Takeaways

• NFA members may remove the NFA-mandated verbatim legends related to virtual currency activities from their offering and marketing materials, effective immediately.
• NFA members may be able to revise, and in some cases scale down, their disclosures related to virtual currency and virtual currency derivative activities in their offering and marketing materials. However, all such disclosure must be considered in light of other legal and regulatory requirements. NFA members should continue to provide material risk disclosure that is tailored to their strategies and the instruments they trade.
• NFA members will be subject to the requirements and prohibitions of Rule 2-51 with respect to activities in all digital asset commodities related to derivatives listed on CFTC-regulated trading facilities. At a minimum, this expands the list of in-scope digital assets from BTC and ETH to include XRP and SOL. This list is expected to grow over time as CFTC-regulated trading facilities list new digital asset derivatives for trading. NFA members involved in digital asset activities should review their existing policies and procedures to ensure they are consistent with Rule 2-51, as revised.

Sidley regularly advises clients on digital asset activities and CFTC regulatory requirements. Our team is available to assess the implications for your business or to review relevant compliance procedures and disclosures. 

Knowledge management lawyer Daniel Engoren contributed to this Sidley Update.