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Key Points:
The CFTC accused BNB of violating US derivatives regulations, including failing to keep Americans off its exchange and not registering with the regulator. Even though the three US quant firms were not accused of any wrongdoing, the CFTCās mention of US-headquartered companies using offshore entities to trade on Binance sent a chill through the quant industry. Trading by Wall Street firms, for themselves or on behalf of clients, on overseas venues that arenāt registered with US regulators like the CFTC can be a compliance gray area.
The lawsuit alleged that Binance āactively facilitated violations of U.S. lawā by helping unspecified traders based in the US evade know-your-customer rules and compliance measures meant to block their access. Binance offered a āVIPā treatment, which included lower transaction fees and faster access for trades, to institutional trading firms active in trading Bitcoin perpetual and other crypto derivatives on its platform. The CFTC complaint mentioned that the crypto platform also offered to provide its top traders āprompt notification of any law enforcement inquiry concerning their account.ā
Radix Trading Firm A, Jane Street Trading Firm B, and Tower Research Trading Firm C were cited anonymously in the CFTC complaint as examples of how US clients accessed the platform. According to the CFTC, these institutional trading firms received the āwhite gloveā treatment from Binance in return for providing liquidity on the exchange and trading fee revenue.
Binance has long said that it isnāt required to register with the CFTC because it prevents US users from accessing its global platform, where more complex crypto derivatives products can be traded. However, the CFTC alleged that Binanceās strictures were weak, and in some instances, the exchange helped firms get around them. For example, Binance instructed Trading Firm A, which was really Radix, to access the exchangeās website through a virtual private network. Meanwhile, according to the complaint, Trading Firm B entered into a āservices agreementā with an entity registered in Jersey, a British dependency. The people said that firm, described as one of Binanceās largest customers, was Jane Street.
The USās main derivatives regulator, the CFTC, which claims significant jurisdiction over crypto assets, didnāt comment on the matter. Jane Street declined to comment, while Radix and Tower didnāt respond to multiple requests for comment. Radix co-founder Benjamin Blander told the Wall Street Journal that it believed it did nothing wrong in trading through offshore entities on Binance and that it has been cooperating with the CFTC.
The lawsuitās mention of US-headquartered companies using offshore entities to trade on Binance caused concern in the quant industry, as many have dabbled in crypto. Still, equities and other more traditional assets remain their bread and butter. A serious regulatory misstep could have repercussions on their broader ability to conduct business.
DISCLAIMER:Ā The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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Annie
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