Statement of Commissioner Brian D. Quintenz in Support of Final Interpretive Guidance: Retail Commodity Transactions Involving Certain Digital Assets
March 24, 2020
I support today’s final interpretive guidance regarding when “actual delivery” has occurred in the context of transactions with retail customers entered into on a leveraged, financed, or margined basis involving digital assets that are, or can be, used as a medium of exchange. In the past, the Commission has seen platforms offering retail customers the ability to enter into margined or financed transactions on all manner of commodities–foreign currencies, precious metals, for example–that are repeatedly rolled, offset against, or cashed out. Platforms offering digital assets to retail customers on a margined basis are the latest iteration of this activity.
In function, these trades bear many of the hallmarks of futures trading by allowing retail customers to speculate on price movements of the underlying commodity, but without any of the important customer protections afforded by regulated futures exchanges. Recognizing the potential for fraud and abuse in these retail markets, the Commodity Exchange Act calls for such trades to be treated as if they were futures, unless the commodity is “actually delivered.” Historically, the Commission has employed a functional approach to determine whether “actual delivery” has occurred, closely scrutinizing “how the agreement, contract, or transaction is marketed, managed, and performed, instead of relying solely on language used by the parties in the agreement…” Today’s final interpretive guidance builds upon that functional approach, tailoring it to the unique characteristics of digital assets.
To determine whether “actual delivery” has occurred, the guidance focuses on two primary precepts. First, the customer must have possession and control of the entire quantity of the virtual currency, including the ability to use the virtual currency freely in commerce no later than 28 days from the date of the transaction. Second, the offeror (typically, the trading platform) and the counterparty seller cannot retain any legal right or control over the virtual currency at the expiration of 28 days from the date of the transaction. Essentially, the guidance looks to whether the customer has the ability to freely use the virtual currency purchased on margin in interstate commerce. Although “actual delivery” is by its nature a facts and circumstances test, the guidance does provide several non-exclusive examples of what the Commission would view as satisfying the “actual delivery” exception.
The digital asset space is a nascent, evolving, incredibly innovative space, with the potential to offer great efficiencies and enhancements to the markets. This interpretation is not designed to stifle this innovation. Instead, it seeks to strike the appropriate balance between protecting the general public from bad actors and financial harm and providing a functional, adaptable regulatory framework to a rapidly evolving business. As the guidance notes, the Commission will continue to follow developments in the virtual currency markets, evaluating business activities on a case-by-case basis.
I also note that this guidance has been outstanding for over two years. During that time, the virtual currency markets have matured considerably and firms have made strategic business decisions to develop and grow certain business lines. In light of those facts, I support the Chairman’s view that the Commission should exercise its prosecutorial discretion to forbear from initiating enforcement actions addressing aspects of this interpretive guidance that were not plainly evident from prior Commission guidance, enforcement actions, and case law for 90 days after its issuance.
 This interpretation only addresses the meaning of the “actual delivery” exception for retail commodity transactions under CEA Section 2(c)(2)(D)(ii)(III)(aa). There is a separate exception under CEA section 2(c)(2)(D)(ii)(III)(bb) for commercial transactions conducted in the normal course of business of the buyer and seller.
 Retail Commodity Transactions Under Commodity Exchange Act, 78 FR 52426, 52428 (Aug. 23, 2013).