Coinbase to Build Its Own Market Surveillance System
Coinbase has hired a former New York Stock Exchange (NYSE) executive to create a market surveillance system for its platform. The move demonstrates Coinbase’s willingness to regulate itself and be transparent, with tracking systems such as this a rarity in the crypto world.
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Coinbase Tasks Market Veteran With Building Custom System
Peter Elkins, formerly the head of market surveillance at the NYSE, is now working for Coinbase, per Business Insider. He is heading up the “Coinbase Trade Surveillance Program” and is currently busy staffing it. The program’s intention is to monitor markets for signs of manipulation or other abusive trading behavior.
The fact that Coinbase is implementing such a system is an indication of its acknowledgement of the gravity of the need to bring order to the hitherto unregulated crypto marketplace. The move highlights Coinbase’s intention to be on the right side of government regulators and compliance.
Coinbase is not the only exchange planning to usher in surveillance technology to crypto markets. American exchange Gemini announced in April it would be using NASDAQ’s SMARTs Market Surveillance technology on its platform. Coinbase is planning to build its own system from scratch.
Playing CAT and Mouse With the SEC
The approach is one of high-risk and high-reward, as a surveillance system designed specifically for cryptocurrencies could be more effective and even prove to be a new source of revenue for Coinbase should it choose to license the technology to other exchanges. However, the firm is likely to to face serious challenges, as such systems have proven difficult to implement in the past.
The implementation of the U.S. Securities and Exchange Commission’s (SEC) Consolidated Audit Trail (CAT) system, designed to gather market data from major American exchanges like the NYSE and NASDAQ, was delayed last fall, leading to a stand-off between the SEC and industry players, who said they needed more time to ensure investor data was secure.
Facing Varying Degrees of Cooperation, Regulators Apply Heat to Crypto Exchanges
Crypto exchanges globally are facing increasingly strict regulatory challenges, due in large part to hacks and widespread suspicions of rampant market manipulation. In June, the Wall Street Journal reported that the U.S. Commodity Futures Trading Commission (CFTC) was investigating four crypto exchanges. That news came a month after New York State Attorney General Eric Schneiderman sent letters to 13 crypto exchanges seeking “key information on their operations, use of bots, conflicts of interest, outages, and other key issues”.
In September 2017, the Japanese Financial Services Authority (FSA) created a 30-person team to investigate crypto exchanges, according to a report from the Japan Times. And in South Korea, after a series of exchange hacks, the government announced last month that they would be speeding up the process of regulation of crypto exchanges, eventually forcing them to comply with rules similar to what other financial institutions face.
Coinbase Compliant, Competitors Defiant
But not all exchanges are interested in playing ball. San Francisco-based Kraken, which left New York State in 2015 in the wake of the BitLicense regulations, refused to comply with an April request from Attorney General Schneiderman. After receiving the letter, Kraken CEO Jesse Powell congratulated himself for making “the wise decision to get the hell out of New York three years ago”.
Kraken also pulled out of Japan last month, though it cited increasing operational costs, not growing regulation, as the reason. Kraken also recently came under scrutiny after an investigation by Bloomberg of trading activity on the exchange found unusual trading patterns in Tether. Kraken refuted the report.
Another top exchange, Binance, simply flew the coop, moving its operations first from China to Japan, and then onto Malta. Another large exchange, Bitfinex, was reportedly considering a move to Switzerland from the British Virgin Islands back in March. It had already faced difficulties with banking relationships in Taiwan and suffered a hack which cost the exchange $65 million USD in 2016.
What’s your take? Is Coinbase selling out on its customers or acting responsibly?
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