b'SEC AND CFTC GUIDANCE GOODWIN1. a customer secures (i) possession and control ofvirtual currencies with retail investors, however, should the entire quantity of the commodity, whether it wasbe aware of two key issues in the Final Guidance.purchased on margin, or using leverage, or any otherFirst, the CFTC acknowledged that counterparties may financing arrangement, and (ii) the ability to use theuse an affiliated custodian so long as the depository entire quantity of the commodity freely in commerceis completely separated from any execution venue (away from any particular execution venue) no laterservices and the affiliated custodian is (1) a financial than 28 days from the date of the transaction and at allinstitution (as defined by the CEA); (2) a separate line times thereafter andof business from the counterparty that is not subject 2. the offeror and counterparty seller (including anyto the counterpartys control; (3) a separate legal entity of their respective affiliates or other persons actingfrom the counterparty and any counterparty execution in concert with the offeror or counterparty seller on avenue; (4) predominantly operated for the purpose similar basis) do not retain any interest in, legal rightof providing custodial services, including for virtual to, or control over any of the commodity purchased oncurrency and other digital assets; (5) appropriately margin, leverage, or other financing arrangement at thelicensed; (6) offering the ability for the customer expiration of 28 days from the date of the transaction. to utilize and engage in cold storage of the virtual currency, and (7) contractually authorized by the customer to act as its agent.Second, book entry transfers (where the virtual In the CFTCs view, actual delivery in the contextcurrency does not actually move back into the of virtual currency occurs when:investors own wallet) are problematic. According to the CFTC, actual delivery will not have occurred 1.a customer secures (i) possession and controlif, within 28 days of entering into a transaction, the of the entire quantity of the commodity, whethercounterparty makes a book entry to show that delivery it was purchased on margin, or using leverage, orof the virtual currency has been made to the customer any other financing arrangement, and (ii) the abilitybut has not (1)transferred the virtual currency from the to use the entire quantity of the commodity freelycounterpartys blockchain address to the purchasers in commerce (away from any particular executionblockchain address (over which the purchaser venue) no later than 28 days from the date of themaintains sole possession and control) or (2) fully released all liens (or other legal rights or asserted transaction and at all times thereafter andinterests) that could result in a forced sale of the 2. the offeror and counterparty seller (including anypurchasers virtual currency by the counterparty.of their respective affiliates or other persons actingThe Final Guidance is meant to be helpful to digital in concert with the offeror or counterparty sellerasset financial services providers engaged in on a similar basis) do not retain any interest in,decentralized finance with retail investors. According legal right to, or control over any of the commodityto CFTC Chairman Heath Tarbert: To function well, markets and their participants need regulatory certainty. purchased on margin, leverage, or other financingAt the same time, rapid evolution in the fintech space arrangement at the expiration of 28 days from theoften necessitates an adaptable regulatory framework. date of the transaction. I believe this interpretive guidance provides the right blend of certainty and flexibility. As U.S. digital asset markets evolve, so too may our regulatory approach. While it remains to be seen whether so-called virtual The Final Guidance is largely consistent with thecurrencies will gain traction on par with traditional Proposed Interpretation. Market participants that entercurrencies or even other commodity classes, it is into leveraged or derivative contracts concerningcritically important that the United States continue to be a leader in blockchain technology.8'