By: Mike Castiglione, Director of Regulatory Affairs, Digital Assets, Eventus
The National Futures Association (NFA) in March 2023 proposed a new rule to expand its anti-fraud, trade monitoring, and supervision requirements on all members that engage in digital asset commodities activities, in both derivative and spot markets. This rule goes into effect on May 31. NFA Rule 2-51 would prohibit any member from engaging in “manipulative acts or practices regarding the price of any digital asset commodity” and demands all members “observe high standards of commercial honor and just and equitable principles of trade.” The NFA is a self-regulatory organization (SRO), authorized by the Commodities Future Trading Commission (CFTC) to oversee the U.S. derivatives market.
In addition, NFA Rule 2-51 would prohibit members or associates from:
- Attempting to cheat, defraud, or deceive any person regarding digital asset commodities;
- Use high-pressure tactics or make statements that trading in digital assets is appropriate for all persons;
- Make a false report or record regarding any transaction; or
- Disseminate false information about the prices of a digital asset.
The Rule also mandates that members “diligently supervise its employees and agents in the conduct of their digital asset commodity activities.” The NFA notes that, for at least the first iteration of this rule, they will define “digital asset commodities” only as Bitcoin and Ether. The NFA said it needed the new rule to expand its jurisdiction to discipline firms that might commit fraud or similar misconduct in their spot digital asset activities. Pending CFTC review, the new rule would be officially posted in the NFA Rulebook.
Validus in Practice (ViP): The Eventus Validus Trade Surveillance platform helps clients to satisfy the market surveillance and supervision requirements under CFTC and NFA rules across multiple asset classes, including crypto. Our experience monitoring for manipulation in futures, equities and other assets has powered our software’s capabilities toward digital assets. In fact, the NFA noted it modeled its new rule after the requirements already in place for exchange-traded funds and swaps (Rule 2-2) and foreign exchange (forex Rule 2-36).
About Eventus
Eventus is a leading global provider of multi-asset class trade surveillance, market risk and anti-money laundering (AML) solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets.
Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.