Keywords: commodity, futures trading, bitcoin, exchange act, commission regulations

On September 17, 2015, in an order in the Matter of Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, Respondents, CFTC Docket No., 15-29, the US Commodity Futures Trading Commission (Commission) found that the respondents had violated Sections 4c(b) and 5h(a)(l) of the Commodity Exchange Act (CEA) and Commission Regulations 32.2 and 37.3(a)(l) by conducting activity related to commodity options contrary to Commission Regulations and by operating a facility for the trading or processing of swaps without being registered as a swap execution facility or designated contract market.

Specifically, the order found that the respondents operated an online facility named Derivabit, offering to connect buyers and sellers of Bitcoin option contracts and, as such, failed to register that facility as a swap execution facility or designated contract market as required under section 5h(a)(1) of the CEA.

The order specifically finds Bitcoin and similar virtual currencies (cryptocurrencies) to be "commodities" as defined in section 1a(9) of the CEA. The consequences of the order are potentially significant and will subject certain transactions in cryptocurrencies to required trading on recognized exchanges (or to have applicable exemptions therefrom) and subject parties to such transactions to possible registration as commodity pool operators or commodity trading advisers (or to have available exemptions therefrom) or, depending on the nature of such party's role and other activities, to possible registration as a swap dealer or major swap participant.

Originally published September 18, 2015

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2015. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.