Cryptocurrency exchange FTX has identified ten key principles they suggest should guide policy makers and regulators responsible for building out the regulatory framework for spot and derivative cryptocurrency markets.
The FTX Research team has released the following ten principles and proposals:
Proposing One Primary Market Regulator with One Rule Book for Spot and Derivatives Listings.
Full-Stack Infrastructure Providers and Maintaining Market-Structure Neutrality.
Custody of Crypto Assets – Key Functional and Disclosure Requirements.
Full-Stack Market Infrastructure Providers and the Lifecycle of a Trade – Addressing Risk Related to Token Issuance and Asset Servicing, Orderly Markets and Settlement of Trades, Cross Margining and Risk Management of Positions.
Trading Platform Providers – Ensuring Regulatory and Market Reporting.
Ensuring Customer Protections.
Ensuring Financial Responsibilities are Met.
Ensuring Stable Coins Used on Platform Meet Appropriate Standards.
Full-Stack Infrastructure Providers – Ensuring Appropriate Cybersecurity Safeguards are Kept.
Full-Stack Infrastructure Providers – Ensuring Anti-Money Laundering and Know Your Customer Compliance.
While many of the principles are analogous to traditional market structure principles, FTX believes some reflect the market-structure choices made by cryptocurrency platform operators. The suggestions are focused on the US market but the principles are likely applicable in other jurisdictions and we discuss some below.
Similar to Recommendation 2 from the Senate Report into Australia as a Technology and Financial Centre, FTX suggests key functional and disclosure requirements for the custody of crypto assets. In particular, Principle 3 suggests requirements for third-party providers of data centres as well as custodial providers to cover the evolving nature of crypto storage.
FTX also considers the importance of regulatory market reporting to mitigate the risk of market manipulation in Principle 5. While market visibility is a primary consideration, FTX also suggests an API (Application Programming Interface) allow market supervisors realtime access the data directly from a platform, rather than requiring a separate entity to do so.
Principle 9 suggests cybersecurity safeguards for market providers. Accordingly, policy makers should apply the existing framework already in place for exchanges, or require that platform providers develop and disclose to market participants policies and procedures addressing cybersecurity safeguards. In an era where the value of a hack of an exchange is increasing, and ransomware saw a jump in popularity, this is a key issue to be addressed in the industry.
With the regulatory landscape regarding crypto-assets continuing to rapidly evolve and develop, principles to educate these are a glimpse through the lens of crypto-asset exchanges and the discussion of regulation encourages conversation and growth.