According to a recent report, cryptocurrency trading platforms (CTPs) must disclose their regulatory status and not describe themselves as exchanges until they are properly regulated and meet the standards that all regulated non-crypto market infrastructure providers meet.
And while decentralized finance can bring innovation to financial products, CTPs are often not as decentralized as they first appear, which presents some risks, according to the report Promoting Sound Marketplaces: DeFi/CeFi, Crypto Platforms and Exchanges, published. by the World Federation of Exchanges (WFE), the global industry association of exchanges and clearinghouses.
In light of these issues that continue to plague the nascent cryptocurrency industry, which has suffered several high-profile controversies and collapses, the WFE recommends that CTPs follow six key principles that will promote robust markets in cryptocurrency trading:
- Segregate market infrastructure functions within a CTP where appropriate, such as limiting CTPs from trading their own portfolio or being in potential conflict with their clients.
- Operate orderly markets by implementing systems and controls for broader risks, such as abusive trading, to protect the integrity of price formation.
- Have sufficient financial resources to deal with expected operational stress events.
- Facilitate compliance with best execution requirements.
- Increase the robustness of listing standards
- Have adequate governance and management requirements.
The report, which draws on the collective experience of regulated market infrastructures as trusted guardians of public markets, also recommends that governments and regulators require CTPs to meet the high standards that all market participants expect and deserve.
By applying regulatory principles that have been tested through established and trusted market infrastructures, governments and regulators can help the cryptocurrency trading sector grow, while protecting investors and ensuring orderly, fair and secure markets. transparent.
"The exchange industry continues to believe in the promise of cryptocurrency and digital asset trading and is working with all stakeholders to evolve market structure and standards to the level necessary to facilitate growth and confidence in these markets," says Nandini Sukumar, CEO, WFE. โThese six key principles should be a checklist for any CTP that is serious about meeting the standards expected of a credible markets operator. Adhering to the rules will not only protect markets, but will allow the sector to grow.โ
Richard Metcalfe, head of regulatory affairs at the association, adds: โGovernments and regulators have helped shape the spirit of the current market infrastructure so that it operates in the reliable way it does today. The same logic must be applied to CTPs, whether centralized or not, to avoid the significant risks and realities that we have seen that can and do damage investor confidence.โ
