When Does a Website Providing Cryptocurrency Quotes Need to Register as a CTA with the CFTC?
R Tamara de Silva
The question of whether a website that provides market data and analysis for cryptocurrency must register as a Commodity Trading Advisor (CTA) with the Commodity Futures Trading Commission (CFTC) comes up often. The answer is fact specific depending on the activities the website engages in.
Understanding the Role of a CTA
A Commodity Trading Advisor (CTA) is defined as any individual or organization that, for compensation or profit, advises others, directly or indirectly, on the value or advisability of trading futures contracts, options on futures, retail off-exchange forex contracts, or swaps. The definition includes those providing advice through publications, writings, or electronic media[i]
Signal Aggregation vs. Advisory Services
Traditionally, software providers that aggregate and automate trade signals without offering personalized trading advice have not been required to register as CTAs ie. CQG, Rithmic, et. Al. These platforms typically offer trade signals based on price movements or other technical indicators and connect users to registered exchanges. The recent enforcement action against SignalPush, however, created some uncertainty in this area.[ii]
Signal aggregation in the context of this matter refers to the process of collecting trading signals from multiple sources and combining them to provide a unified recommendation to users. SignalPush gathered various trading suggestions from different providers, integrated them, and then offered a consolidated recommendation. The purpose of this aggregation is to enhance the reliability and comprehensiveness of the trading advice provided, helping users make better-informed trading decisions based on a broader array of information.
The SignalPush Case
In the case of SignalPush, the CFTC required registration as a CTA because the platform offered more than just signal aggregation. SignalPush engaged in activities such as marketing, and soliciting customers and potential customers the ability to obtain trade signals and to automate trading on binary options platforms for compensation.
These activities went beyond providing technical data, crossing into the realm of providing advisory services, which necessitated CTA registration. [consent order]
BareIt Media, operating as SignalPush’s actions fell under the definition of a (CTA) because they were advising others, directly or indirectly, about trading commodities (in this case, binary options) for a fee.
According to the CFTC and the National Futures Association (NFA), any individual or organization that provides advice on trading futures contracts, options on futures, retail off-exchange forex contracts, or swaps for compensation must register as a CTA. This ensures that the advisor meets certain regulatory standards designed to protect investors and maintain market integrity.
The relevant regulations are:
1. CFTC Regulation 4.14: This regulation outlines the criteria for exemptions from CTA registration. It states that if an advisor provides advice to 15 or fewer persons over the past 12 months and does not hold itself out to the public as a CTA, or if the advice is incidental to their business or profession, they may be exempt from registration. BareIt Media did not meet these exemption criteria and was required to register.[iii]
2. Section 4m(1) of the Commodity Exchange Act (CEA), 7 U.S.C. § 6m(1): This section mandates that any person or entity acting as a CTA must register with the CFTC unless they qualify for an exemption. BareIt Media failed to register as required.[iv]
By not registering, BareIt Media violated CFTC regulations, leading to the consent decree requiring them to cease their advisory activities until they properly register as a CTA.
Implications for Fintech Vendors
While the SignalPush enforcement action raised concerns, it is important to note that the CFTC's requirement for CTA registration was based on specific actions by SignalPush. CFTC Commissioner Caroline Pham noted that the enforcement action should not necessarily be seen as a shift in policy that would broadly require all signal aggregation platforms to register as CTAs.[v]
Key Takeaways
1. General Signal Aggregation: Platforms that solely provide signal aggregation and link to registered exchanges are generally not required to register as CTAs.
2. Advisory Activities: If a platform engages in advisory activities, including providing personalized trading advice or managing client accounts, it may need to register as a CTA.
3. Case-Specific Enforcement: The SignalPush case was specific to its actions and caution should be taken before necessarily interpreting it as a broad policy change.
It is important to seek experienced legal counsel in these matters to reduce regulatory risk and ensure compliance with CFTC and NFA rules and regulations. For any questions in this area, contact R Tamara de Silva.