Recently, Blockonomi covered a story on the Nasdaq and how many of the trading platform’s top financial players were refusing to put their hope and trust into bitcoin. Now, the stock exchange has come forth to say it is working with approximately seven separate cryptocurrency trading venues.
At the time of writing, only two of these seven have been named: Gemini in New York and SBI Virtual Currency. The latter has been partnered with Nasdaq since June of last year, while the former has been working with Nasdaq since April. At that time, Cameron and Tyler Winklevoss – the founders of the exchange – released a statement reading:
“Our deployment of Nasdaq’s SMARTS Market Surveillance will help ensure that Gemini is a rules-based marketplace for all market participants.”
How It All Works
The Nasdaq employs a team of roughly 20 people to fully examine all interested crypto exchanges. They endure a significant due-diligence process that ensures the exchanges in question are free of fraudulent activity and that they employ top-level security technology. Anyone who doesn’t play by the rules or lacks the appropriate resources is quickly sent home.
However, granted a company meets Nasdaq’s requirements, they earn access to the same surveillance software (SMART) the exchange uses to check its trading clients and assure their identities.
Tony Sio – Nasdaq’s head of exchange and regulator surveillance – commented:
“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 like startups, we realized we needed to do this check process… The objective that we’re trying to work with crypto is we see this as a growing asset class, so we’re working to provide our technology – it could be around matching, it could be around surveillance – to help our customers as they grow their marketplaces.”
The Process For Which It’s Done
Sio has also presented the exact methodology that Nasdaq uses when screening cryptocurrency exchange clients. The three categories it separates platforms into include Business Model, Know-Your-Customer (KYC)/Anti-Money Laundering (AML), and Exchange and Governance Controls. Representatives examine how all crypto platforms do in each category, then make a final decision regarding whether they would make valid partners.
One of the major things Nasdaq looks at during the “Business Model” examination is a crypto company’s products. Executives check to see how tradable they are, and if they’re accessible on multiple platforms. They also check to see how they’re being used.
Moving onto the KYC/AML department, examiners focus on the organizational structure of the business. They also study the founders’ backgrounds. Where did they work before? Do they have any experience in the tech space? Where did they go to school? These are all questions asked during the second step.
We Understand Why This Is Done
For the most part, this maneuver makes the most amount of sense. If there’s one thing that can be said about the crypto market, it’s that it’s vulnerable. From hackers to ongoing volatility, the crypto market has shown that it doesn’t always possess the means to protect itself from those who seek to do harm. Mt. Gox, Coincheck, Bithumb, the list goes on and on, and the Nasdaq isn’t eager to take any chances on exchanges that might “lose” customer funds overnight.
It’s a scary thought that’s proven all too real time and time again, and granted an exchange isn’t careful, the occurrence could repeat itself without question.
The final category involves making sure that asset listing protocols are in place. Some exchanges, like Coinbase in the U.S., let the public know whenever a new crypto asset makes it to their trading platforms, but others aren’t so clear. Each exchange must have a clear process for letting customers know which new assets will soon become available and when.