On Nov. 1st, Stock exchange giant Nasdaq Inc. released a paper announcing the intent to use the anti-fraud tools it’s developed for conventional exchanges to aid in stamping out crypto fraud.
How can #cryptocurrency exchanges foster transparency and implement processes and technology that contribute to fair and orderly trading and investor protection?
Find out in Nasdaq's latest viewpoint: https://t.co/L6Z6IARFzm
— Nasdaq (@Nasdaq) November 1, 2018
Lending Market Surveillance Tools to the Cryptosphere
The goal, Nasdaq expresses the paper, is to integrate increased surveillance and regulation to cut down on the potential dangers of investment in cryptocurrency. The company asserts that exchanges like itself already have rules in place to prevent the types of schemes wreaking havoc in the crypto space, stating:
“Regulators, brokers and exchanges have surveillance teams that monitor activity constantly and advanced technologies to help capture and analyze abusive behaviors including pump-and-dump schemes, insider trading, wash trading as well as spoofing and layering.”
All of these have made headlines in the crypto-verse and contributed to the environment of leeriness that led to the New York attorney general’s Virtual Market Assets Integrity report and several state-level regulators creating Operation Cryptosweep.
Nasdaq points to the governments of Abu Dhabi and Singapore as an example of what successful crypto regulation frameworks are capable of achieving in the paper, calling for a unification of the “fragmented” regulatory approach of America’s crypto marketplace. They also claim that ‘know your customer (KYC)’ and anti-money laundering (AML) rules aren’t enough, stating:
“Technologically sophisticated players do a significant amount of wallet-to-wallet trading, and those opaque transactions never go through KYC and AML screening.”
The paper went on to add:
“Moreover, the markets are extremely volatile, partially because order flow is mainly driven by retail investors who are easily unnerved by geopolitical events and government statements about regulation.”
Crypto Companies Receptive
According to Bloomberg, some crypto companies are already approaching Nasdaq to license their market surveillance software, called Nasdaq SMARTS, for use in digital exchanges. The exchange claims its software can weed out bad actors through analysis of market data, combing through trades to try and determine a user’s intent through machine learning.
Gemini already uses the software and the company has worked very closely with New York’s regulators, including the hire of former New York Stock Exchange (NYSE) exec Robert Cornish as their CTO. Nasdaq Head of Exchange and Regulator Surveillance Tony Sio said his company is getting approached by crypto firms “every week or two” to license their software, but turn down many of the requests Because the companies “aren’t reputable enough yet.”
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