After Bitfinex, the CFTC issued its Proposed Interpretation on "Retail Commodity Transactions Involving Virtual Currency." Proposed Interpretation, 82 Fed. Reg. 60335 (CFTC Dec. 20, 2017). Although the comment period closed March 20, 2018, the CFTC has taken no further action on the Proposed Interpretation to date.

The CFTC will assert Commodities Exchange Act regulatory jurisdiction over any "entity or platform [that] offers margin trading or otherwise facilitates the use of margin, leverage or financing arrangements for their retail market participants…." Id. at 60337 & n. 41.

The "Actual delivery" exception to that jurisdiction requires taking "possession and control of the entire quantity" of the virtual currency, with the "ability to use it freely in commerce" and the offeror/seller may not retain any control at the end of Day 28. Id. at 60339. Distinguishing the entirely contractually-oriented analyses of prior Zelener precedents, the CFTC intends to take a "functional approach" on facts and circumstances. Id. at 60339. The factors to be considered include ownership; possession; title; physical location (before and after execution of the contract, including all documents); the nature of the parties' relationship; and the manner in which the transaction is recorded and completed. Id. at 60337 & n. 28.

The CFTC indicates that "actual delivery" will require "transfer of title and possession of the commodity to the purchaser or a depository acting on the purchaser's behalf." Id. at 60337 (emphasis added). And notes that "certain instances where a purchase is … 'otherwise netted with another transaction' do[es] not constitute actual delivery." Id. at 60337 & n. 31. Under the Proposed Interpretation, actual delivery requires:

(1) The "customer having the ability to: (i) Take possession and control of the entire quantity of the commodity…, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days…"; and

(2) "The offeror and counterparty seller … not retaining any interest in or control over any of the commodity at the expiration of 28 days."

Id. at 60339 (emphasis added).

The Proposed Interpretation provides four non-exclusive illustrative examples:

Example 1 finds actual delivery met by an on-chain record of a transaction transferring a Token from a seller's to a buyer's wallet, with no retained seller interest, and transfer of title. Id. at 60340.

Example 2 finds actual delivery achieved by counterparty delivery within 28 days to a depository (including a wallet or other) and transfer of title, whereby "(3) the purchaser has secured full control over the virtual currency (i.e., the ability to immediately remove the full amount of purchased commodity from the depository) and no liens or retained interest…." Id. at 60340 (emphasis added).

Example 3 does not recognize actual delivery through mere book-entry transactions. Id. at 60340.

Example 4 provides there is no actual delivery if within 28 days the transaction is offset or netted or settled in a different medium of exchange. Id. at 60340. But the 2013 Interpretation (actually adopted) provides that where there is evidence (beyond the four corners of the contract) of actual delivery, offset or netting is permissible and does not vitiate actual delivery. 78 Fed. Reg. 52426, at 52429 (CFTC Aug. 23, 2013).