US Commodity Futures Trading Commission Allows Employees To Trade Cryptocurrency

News | March 1, 2018 By:

The US Commodity Futures Trading Commission (CFTC), the leading commodities regulator in the US, has formally allowed its employees to trade cryptocurrencies.

CFTC general counsel Daniel J. Davis issued a memorandum to staff titled “Guidance Regarding Ethics Laws and Regulations Related to Employee Holdings and Transactions in Cryptocurrencies.” Davis explained in the document that because the CFTC has determined that cryptocurrencies are commodities, employees can trade them like they would precious metals, barrels of oil, and other commodities.

However, employees are still not allowed to make bitcoin futures-related investments, as this would be a conflict of interest. Davis said that while there is no restriction on buying or selling commodities, including cryptocurrency per se, there is a blanket prohibition against transacting in futures and swaps.

The memorandum also clarified that employees are not allowed to purchase cryptocurrencies “on margin” or transact in cryptocurrencies if they have related non-public information. These are ethical standards that apply to commodities generally – cryptocurrencies are no exception.

“In this environment, the situation is ripe for the public to question the personal ethics of employees engaging in cryptocurrency transactions,” Davis wrote. “Please keep in mind that you must endeavor to avoid any actions creating the appearance that you are violating the law or government and commission ethical standards.”

In 2014, the CFTC declared that cryptocurrencies are commodities that are subject to their oversight. While the CFTC does not have the authority to supervise cryptocurrency exchanges, it has direct oversight of US cryptocurrency futures markets, the first of which launched in December 2017 on Chicago-based exchanges CBOE and CME.

Erica Elliott Richardson, CFTC’s director for the office of public affairs, said the CFTC do not have jurisdiction over all commodities. She said they only have jurisdiction over commodity futures, and they can and do ban trading for employees in futures and swaps.

“Employees of government agencies, like the CFTC, are subject to long-established laws and regulations on conflicts of interest, insider trading, and ownership restrictions of regulated assets,” Richardson said. “We do not regulate bitcoin. We regulate bitcoin futures products.”

However, the move to allow its employees to trade cryptocurrencies has been criticized by some legal experts.

Angela Walch, an associate law professor with a specialization in digital money and financial stability at St. Mary’s University, called the move “mind-boggling,” saying it “could absolutely skew their regulatory decisions.”

Similarly, Richard Painter, a securities lawyer and former White House ethics lawyer, said cryptocurrencies are functionally more similar to futures than commodities. The CFTC should not be allowing its employees to invest in them, he said, arguing the decision “just looks terrible.”

While Washington University law professor Kathleen Clark said the move makes sense because cryptocurrencies are currently classified as commodities, current “ethics standards seem to be general enough to cover it.”

The decision reflects CFTC’s recognition of cryptocurrency’s legality and growing importance in the financial markets. In a recent US Senate committee hearing, CFTC chairman J. Christopher Giancarlo said, “It strikes me that we owe it to this new generation to respect their enthusiasm to respect about virtual currencies with a thoughtful and balanced response, not a dismissive one.” He added that blockchain rechnology would not exist if bitcoin had not been invented.