The World Federation of Exchanges (WFE), the global body for exchanges and central counterparty clearinghouses (CCPs), sets out six principles to promote robust markets in cryptocurrency trading in a new report.
The report, drawing on the collective experience of regulated market infrastructures as trusted guardians of public markets, makes six recommendations in light of the issues that continue to plague the nascent cryptocurrency industry, which has suffered several controversies and crashes. High profile.
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 transparent markets. .
The WFE analysis also found that while decentralized finance can bring innovation to financial products, crypto trading platforms (CTPs) are often not as decentralized as they appear at first glance, which presents some risks.
The WFE recommends that governments and regulators require CTPs to meet the high standards that all market participants expect and deserve. The recommendations are:
- Segregate market infrastructure functions within a CTP where appropriate, such as limiting CTPs that trade their own portfolio or are 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.
In the short term, the WFE recommends that CTPs disclose their regulatory status and not describe themselves as exchanges until they are properly regulated and meet the standards listed above. All infrastructure providers in the regulated market comply with the standards mentioned above.
Nandini Sukumar, CEO of WFE, said: โThe exchange industry continues to believe in the promise of cryptocurrency and digital asset trading and is working with all stakeholders to develop market structure and standards to the level necessary to facilitate growth and confidence in these markets. These 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 WFE, said: โGovernments and regulators helped shape the spirit of today's 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
The full document can be read. here.
Source: WFE
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