The world’s second-largest stock exchange, Nasdaq, is set to roll out its proprietary surveillance technology for seven cryptocurrency exchanges to detect cases of fraud that are rampant in the virtual currency space.
Nasdaq has not revealed the complete list; the only cryptocurrency exchanges confirmed to receive the technology are Gemini Exchange and SBI Virtual Currency Exchange. An increasing number of cryptocurrency exchanges will look to adopt such a surveillance system to bring more transparency and increase adoption.
Prior to the confirmation of the client exchanges, a 20-person team from Nasdaq performs a stringent due-diligence process to assess the recipient, to identify whether the crypto-exchanges are both technically adept and morally right for this technology.
Tony Sio, an executive at the market surveillance division of Nasdaq, addressed the issue on January 30, he also spoke about the concerns that cryptocurrency-exchanges have faced for a long time and how the overall financial industry will react.
“Historically, we don’t do such a large vetting process for our clients because they are much more well-known. But as we started working with less well-known names, start-ups, then we realized we needed to do this check process.”
Sio further categorized the companies that are listed on these cryptocurrency exchanges into the following: Business Model, KYC/AML, and Exchange Governance and Controls.
Nasdaq is extremely selective regarding which exchange will receive the surveillance program, with Sion confirming that the stock exchange has a team of legal and technical experts that evaluated the risk.
“Business Model,” the first category listed by Sio, helps potential clients evaluate Nasdaq’s surveillance model by asking the right questions. The second structure adhered to internal administration to ensure KYC/AML rules are followed. The reputation of the exchange will be assessed by the ownership structure and the background of the founders. Lastly, the final section concerns itself with crypto-asset- listing standards.
The two revealed exchanges i.e. Gemini Exchange and SBI Holdings, have worked with Nasdaq before. SBI VC has been using Nasdaq’s matching system since June 2018 and the Winklevoss Twins’ Gemini Exchange has been using the stock exchange’s SMARTS market surveillance system since April 2018.
In addition to the above, Nasdaq is all set to launch their Bitcoin [BTC] Futures in the first half of 2019, with an official date of release not yet confirmed. However, Nasdaq faces still competition in the institutional investor’s space from NYSE, the largest stock exchange in the world, with the launch of Bakkt, a digital asset program backed by the Inter-Continental Exchange (ICE).
Tony Sio concluded:
“The objective that we’re trying to work with crypto, is we see this as a growing asset class. So we’re working to help provide our technology, it could be around matching, it could be around surveillance, to help our customers as they grow their marketplaces.”
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