The CFTC’s Division of Swap Dealer and Intermediary Oversight recently issued a staff letter addressed to Futures Commission Merchants (FCMs) with respect to virtual currencies deposited by customers that underly physically-delivered futures contracts or swaps.  Noting that virtual currencies present custodian risk, the CFTC has determined that receiving virtual currency from a customer and holding that currency as segregated funds creates additional risks for the other customers.  Given this determination, the CFTC has outlined 12 areas of focus for FCMs, below. 

While this does not alleviate any of the regulatory burden with respect to virtual currencies in the way that many market participants would like, FCMs play a significant role for a variety of market participants and, as such, the advisory is meant to mitigate potential cross-customer risk as a result of events that are unique to virtual currencies.  It also evidences the willingness of the regulators—and the CFTC in particular—to grapple with the opportunities and challenges of virtual currencies and FinTech more generally.  As virtual currency markets continue to mature, we expect legislatures and regulators to further tailor the legal framework to more readily adapt to and integrate these innovations. 


  1. Virtual currency held as customer funds by an FCM must be deposited only with a bank, trust company, or another FCM, or with a clearing organization that clears virtual currency futures, options on futures, or cleared swap contracts (each such entity, a “Depository”).
  2. An FCM must deposit virtual currency held as customer funds with a Depository under an account name that clearly identifies the funds as customer funds and shows that the funds are segregated as required by the Commodity Exchange Act and related regulations.  An FCM also is required to obtain the appropriate written acknowledgment letter from each Depository holding customer funds.
  3. Virtual currency must be available for withdrawal from a Depository upon the demand of an FCM, so that delivery pursuant to the terms of the contracts to which the virtual currency relates will be made without delay.
  4. An FCM in preparing its daily and month-end segregation statements must report customer’s virtual currencies at fair market value.  The FCM must report the total fair market value of customer virtual currency held at a bank or custodian, at a derivatives clearing organization, or at another FCM as supplemental information.  The fair market value of the virtual currencies must be reported in U.S. dollars, and must reflect the FCM’s reasoned judgment based on spot market or other appropriate market transactions.
  5. An FCM, in computing its daily and month-end segregation requirement, may not offset a debit or deficit in a futures customer’s or cleared swaps customer’s account by the value of any virtual currency held in the respective customer’s account.  Therefore, an FCM may be required to deposit its own funds into segregation to cover any debit or deficit.
  6. An FCM may not deposit its own virtual currencies in futures customer or cleared swaps customer segregated accounts for any reason, including in order to meet targeted or residual interest requirements.
  7. An FCM may not invest any segregated futures customer or segregated cleared swap customer funds in virtual currency to be held on behalf of customers.
  8. An FCM should limit the acceptance of virtual currency into segregated and cleared swaps segregated accounts as follows:
    1. The particular type of virtual currency (e.g., bitcoin or ether) relates solely to customer trading of futures (or options on such futures) or cleared swaps contracts that provide for the physical delivery of that virtual currency, provided that the virtual currency is intended to margin, guarantee, or secure such customer trading and has been formally determined to be an acceptable form of collateral for those contracts by the relevant designated clearing organization; and
    2. The amount of virtual currency accepted reasonably relates to the customer’s level of trading in those contracts during each calendar quarter, with the reasonable relationship to be determined by the FCM and the determination to be documented in the books and records of the FCM pursuant to its risk management program policies and procedures.
  9. All virtual currency accepted by an FCM should not provide margin value to any contracts other than the contracts identified in 8(a) above; provided, however, that an FCM would be entitled to use any virtual currency held in a customer’s trading account to cover the customer’s default resulting from losses on virtual currency or non-virtual currency futures or cleared swap transactions, as applicable.
  10. An FCM that holds virtual currency for a customer should contact the customer and initiate a return of that virtual currency if the customer has ceased trading the contracts to which the virtual currency relates and thus there is no related open futures position, with the notice and return to be completed within a reasonable time frame that should not exceed 30 days after the customer has ceased trading for a period of 90 days (i.e., the return to be effected within a total of 120 days from the cessation of trading).
  11. Each withdrawal of virtual currency from a Depository upon demand by the FCM in order to liquidate customer accounts or return customer funds should be completed within a time that is technologically and operationally possible, but should not exceed one day, unless the procedures of the Depository specify additional time as part of its controls related to transfers of virtual currency.
  12. Before accepting any virtual currency into segregation, an FCM should provide 45 days prior written notice to all futures and cleared swaps customers that the FCM will begin accepting virtual currency as of a specified date.  The prior written notice should be delivered to customers in the same manner as those customers have elected to receive other communications regarding their accounts with the FCM.  An FCM should thereafter include the total amount of customer activity in virtual currency being supported by the deposit of actual virtual currency by customer origin as part of its required disclosures.