CFTC Announces Final Guidance on “Actual Delivery” for Digital Assets
Time 3 Minute Read

On March 28, 2020, the Commodity Futures Trading Commission (CFTC) issued final interpretive guidance (Guidance) clarifying its position with respect to retail commodity transactions and the “actual delivery” exception in the context of digital assets.

Under section 2(c)(2)(D) of the Commodity Exchange Act (CEA), certain “retail commodity transactions” are subject to enumerated provisions in the CEA, including on-exchange trading and broker registration requirements, “as if” the transactions are future contracts. An exception applies, however, to contracts that result in “actual delivery” within 28 days from the date of the transaction. The CFTC’s new guidance provides crypto companies with two factors that can demonstrate “actual delivery” of retail commodity transactions in virtual currency:

“(1) a customer securing: (i) possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) the ability to use the entire quantity of the commodity freely in commerce (away from any particular execution venue) no later than 28 days from the date of the transaction and at all times thereafter; and

(2) the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) do not retain any interest in, legal right, or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.).”

The Guidance provides historical background on the “actual delivery” exception and the CFTC’s “flexible approach” to determining when “actual delivery” is met under section 2(c)(2)(D). The Guidance describes the interpretive guidance issued in 2013 (2013 Guidance) that explained the CFTC would look “beyond the four corners of contract documents” to determine whether “actual delivery” of a commodity occurred and provided examples of what may and may not constitute actual delivery. The Guidance also discussed federal courts’ response to the 2013 Guidance, explaining that with respect to “actual delivery,” the Eleventh Circuit and Ninth Circuit have held that delivery requires “a transfer of possession and control.”

The Guidance acknowledged that shortly after the CFTC asserted jurisdiction over digital assets as commodities under the CEA, the CFTC settled an enforcement action with a crypto company that centered on allegations that the entity failed to “actually deliver bitcoins purchased for [customers],” but rather “held the bitcoins in bitcoin deposit wallets that it owned and controlled.” This enforcement action generated requests for additional clarity on the CFTC’s position regarding “actual delivery” of virtual currencies. The instant Guidance, according to the CFTC, is intended to answer some of those requests and provide “an efficient and flexible way to communicate the agency’s current views on how actual delivery exception may apply in various situations.” The Guidance also includes five nonexclusive examples to further clarify the meaning of actual delivery in the virtual currency context.

The CFTC chairman, Heath P. Tarbert, also issued a statement in support of the Guidance, noting the action “reflects the CFTC’s growing expertise in [the digital assets] space” and his “commitment to continued U.S. fintech leadership and providing our market participants with clarity.”

The Hunton Andrews Kurth Blockchain Blog features opinions and legal analysis as we follow the development and use of distributed ledger technology known as the blockchain.


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