Adam S. Tracy Explains CFTC Compliance for Trade Signal Providers

Adam S. Tracy Analyzes CFTC Registration for Cryptocurrency Trade Signal Providers

Cryptocurrency trading expert Adam S. Tracy explains CFTC and commodities law compliance requirements for cryptocurrency trade signal providers.


… to part two of I’m a Trade Signal Provider, Is What I’m Doing Illegal? I’ve already answered the question as it relates to securities and the Investment Adviser Act, and how that may not apply, and the exemptions there, too, so check out my previous video.

This one’s going to deal with the commodities end of it, which I think is a little more relevant to your trade signal providers. If you’re … come from the Forex world, trade signal copy trading, as some people call it, especially in the UK, it’s a lot more prevalent in the commodities space than it is in the securities space. And I think it’s more relevant in the illegal environment that we’re in today to sort of attack this question from the commodities elements. So the fundamental question, as it relates to trade signal providers in the commodities arena is, do I have to, or am I acting as a commodity trading advisor, and if so, do I have to register under the Commodities Exchange Act as a commodity trading advisor, right?

So let’s get to the definition of what a commodity trading advisor is, and I’ll read it, “Any person who for compensation or profit engages in the business of advising others, either directly or through publications or writings as to the value of commodities, or the advisability,” key point there, “… of trading in any commodity,” okay? That is the definition of a commodity trading advisor. So right there, when you think of what a trade signal provider does, you fall under that definition, because you are in theory advising as to the trade opportunities, or the trading … the decision to buy or sell a particular commodity. But the fundamental question is, are we actually … like it was with the securities world, are we dealing with commodity?

And here we have a little more clarity, right? We have more clarity, because there has been decisions, and the coin flip decision, the coin flip court decision, that virtual currencies, AKA Bitcoin, and Ethereum are in fact commodities, right? And we’ve seen this more recently, and there’s been some follow on court decisions which have reaffirmed this. And so Bitcoin, I think without question is a commodity, so is Ethereum. I think arguably all of your currency type coins, your coins really, for lack of … as opposed to tokens, are commodities, and will ultimately be codified to be commodities.

So assuming that we’re dealing with Bitcoin and Ethereum, which you see the most in the crypto space, most of your trade signal providers are dealing with Bitcoin, and to a lesser extent, Ethereum, are you acting as a commodity trading advisor? Well, I would say by definition, you absolutely are, right? You absolutely are, because you’re providing … again, you’re advising as to the trading of a commodity, which in this case is the Bitcoin, or the Ethereum.

So the question becomes, how do I avoid registration? Registration as a commodity trading advisor is cumbersome. You have the NFA. You have the CFTC. You have licensing requirements. It’s an entire thing, and you probably don’t want to do it. And most trade signal providers don’t do it. They don’t do it, because there’s an exemption, all right? There’s an exemption from that, and that exemption is twofold, right? Number one, directing … the trade single provider cannot be A, directing client accounts, and providing commodity trading advice tailored, keyword tailored, to a specific client. So directing client accounts refers to authorization. It refers to control, right? You cannot be in control of somebody’s account, right?

Like if somebody … I’ve done another video, we’ll go back and look at it … managed crypto wallets, right? There’s an element of control in there, right? Someone is like ceding control, ceding de facto trading authority over that account. You can’t do that if you’re going to be exempt from commodity trading, advisor registration, right?

And two, much like we saw in the securities world with the Investment Advisor Act registration, the trade signals can’t be tailored to a particular client, right? You can’t be in the business of portfolio management, right? Again, think of your CFP, think of your financial planners, who plan your portfolio, who are providing specific tailored advice to you, to a particular client, right? You can provide general trade signals out to your client base, you can charge for it, but you can’t tailor, right? You can’t get specific as to any one particular client.

So if you’re not in control of their account, and you’re not providing specific tailored advice to a particular client, then while you may in fact be acting as … meet the definition of a commodity trading advisor, which I would say you would, especially with Bitcoin and Ethereum, because they’re commodities, I think that’s pretty fair to say, you’re exempt from CTA registration under that exemption that we just discussed.

So it’s much like comparing it and drawing back to my last video, talking about Investment Advisor Act in the securities world. It’s one, it’s always goes down to control. You can’t control the account, right? You can’t have like trading authorization over the account. And two, those trade signals have to be general in nature, right? They can be very specific as to the buy and sell, this specific signal that you’re indicating, or the specific market turn that you’re generating the signal off of, that’s fine. That’s totally fine, but what isn’t fine is if you’re going client by client and saying, “Based on your investment profile, here’s the signals that you should receive. Here’s the trades that you should make,” based on that, right?

You sort of have to dictate to the masses, as opposed to one or more clients. Now there’s another exemption if you do it for less than 15 people, so maybe you have some valid clients, and we can get to that in another video. But Kate, the main lesson here is tailoring that specific trade signal set to one or more clients at a time, and being unique with that. So if you have questions, definitely hit me up. My information is below. Visit me, check you later.

A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.

In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.

Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.

Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, four dogs, and two cats.

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