News & Views

US: Surveillance in Digital Assets

US: Surveillance in Digital Assets

In December 2020, the CFTC issued its second installment in a series of primers dealing with Digital Assets. In considering its oversight of digital assets, which includes concerns relating to unfair and deceptive sales practices, market manipulation, and other fraudulent schemes, the CFTC gives a nod to digital asset stakeholders. The CFTC notes that these stakeholders have contributed to the oversight efforts by developing industry initiatives such as codes of conduct, compliance protocols and tools, and market surveillance tools. 

As the “Regulatory Awakening” continues, and as we work closely with a number of digital asset venues, we are periodically asked, “What is different about surveillance for digital assets?”

1) Culture: As suggested by the CFTC, stakeholders are developing initiatives to stay ahead of regulatory concerns. In order to scale and attract institutional investors, digital asset venues trend toward being proactive and transparent when building out their compliance infrastructure. The disruptive nature of the digital assets industry is based on technological advancements which transcend legacy surveillance methods. In other words, the technical approach to surveillance puts a premium on the flexibility, control and scalability of its surveillance system and procedures.

2) Market Structure: From a surveillance perspective, the digital asset exchange must handle the specificity required of a typical SRO surveillance system, while considering the challenges commensurate with an OTC market (e.g. cash FX). Also, among the industry trends we are noticing is a move toward cross-market surveillance.

3) Technology: The products traded, and the manner of trading, brings some unique technical challenges that include: surveillance in a 24×7 marketplace, the number of  decimal places associated with digital assets, real-time surveillance both on-premises and in the cloud, and processing vast amounts of data.

4) Breadth of Coverage: Digital asset venues require the flexibility to monitor for market manipulation, wash trades, AML-related transaction monitoring and anomaly detection. Many of these procedures are bespoke and venues appreciate the ability to amend/improve these procedures quickly.


ViP: Here are a few ways Validus supports the needs of a market participant in digital assets:

  • Significant global coverage of digital asset exchanges, including 2/3 of the exchanges listed on CBInsights Blockchain 50
  • Able to run in different intervals, including real-time and 24×7
  • Scales to handle billions of messages per day
  • Runs analytics and reporting off reconciled data received from counterparties
  • Full-featured APIs for maximum flexibility and interoperability
  • Pre-built procedures that cover the breadth of surveillance needs for digital asset venues, with a fully developed Python integration for customization by venue
  • Rapid development cycles based on continuous client input and interaction
  • Cross-market surveillance natively supported
  • Tools that give clients the ability to support themselves
  • Statistics capabilities to create bespoke analytics for market makers, traders and strategies
  • Automation functionality to create bespoke processing for alert disposition