Concurrent with the Commodity Futures Trading Commission’s statement regarding the expected launch of futures on virtual currencies by the Chicago Mercantile Exchange, the Chicago Board Options Exchange Futures Exchange and the Cantor Exchange, the National Futures Association (NFA) has issued an advisory cautioning investors that trading these products “involves a high level of risk and may not be suitable for all investors.” Among other risks, NFA notes that virtual currencies “experience significant price volatility, and fluctuations in the underlying virtual currency’s value between the time you place a trade for a virtual currency futures contract and the time you attempt to liquidate it will affect the value of your futures contract and the potential profit and losses related to it.” The advisory also encourages investors to conduct due diligence on any individuals and firms soliciting for an investment in futures on virtual currencies and be aware of the risk of Ponzi scheme operators and fraudsters seeking to capitalize on the current attention focused on virtual currencies.

In its statement, the CFTC noted that virtual currencies are unlike any commodity the agency has dealt with in the past. As a result, the CFTC has held “extensive discussions” with the three exchanges, as a result of which, “they have agreed to significant enhancements to protect customers and maintain orderly markets.” In this regard, CFTC Chairman Giancarlo emphasized that the agency expects the futures exchanges, through information-sharing agreements, will monitor the trading activity on the relevant cash platforms for potential impacts on the futures contracts’ price discovery process, including potential market manipulation and market dislocations due to flash rallies and crashes and trading outages. For its part, the CFTC will “engage in a variety of risk-monitoring activities,” including monitoring and analyzing the size and development of the market, positions and changes in positions over time, open interest, initial margin requirements, and variation margin payments, as well as stress testing positions.

NFA’s Investor Advisory is available here. The CFTC’s statement is available here.