Trading

Gensler Tells Investors Crypto Platforms Are ‘Trading Against You’


While the crypto market has taken a drubbing in recent weeks, SEC Chairman Gary Gensler says he is concerned that digital platform companies may be front-running customers to get more advantageous trades and using investors’ coins for their own trading accounts.


“These platforms are often trading against you. They are actually making markets against you,” Gensler warned at the Financial Industry National Regulatory Authority (Finra) Annual Conference today.


America’s top securities cop said the agency is working on a number of initiatives in the crypto space, and one of them is “how to protect the public. How to get basic market integrity, you know basic stuff like ‘don’t front-run your customers’ … and anti-manipulation and anti-fraud” protections, Gensler told an audience of broker-dealer and compliance executives.


“Don’t think you actually own these tokens when you go into a digital wallet,” he said. “You go into a crypto wallet and you transfer ownership to the platform. And if the platform goes down, guess what? You just have a counterparty relationship with the platform. Get in line in bankruptcy court, because the nature of this is you are basically transferring ownership on that underlying bitcoin ledger or other ledger.”


The nation’s chief securities cop also warned firms and investors about coin ownership challenges and the fact that some digital platforms appear to be making markets against their customers.


“When they take that custody of your digital assets, they can use them, they can trade them. It’s not like when you trade in the equities market where we have laws, including SIPC [the Securities Industry Protection Corp., which expedites the recovery of customer money in the event of a firm failure). Not here. The New York Stock Exchange isn’t operating against you. The equity markets aren’t trading against you. These platforms are often trading against you. They are actually making markets against you,” Gensler said.


The SEC chair said he is also actively working with other regulators to make ensure the crypto markets are regulated by the SEC and the Commodity Futures Trading Commission (CFTC).


“I’m saying this to the investing public,” he said. “This is a highly speculative asset class. I’m going to stay technology neutral, but I am not public policy neutral. It is about getting a handful of platforms to work with us. We can use our various authorities and exemptive authorities and like to basically have regulated crypto markets. “


There is “a lot to be done here and in the meantime the investing public is not that well protected. We’re going to be a cop on the beat and use our resources to help protect the investing public,” Gensler said.


The crypto asset space is not as decentralized as most believe, which will make it easier to regulate, he said. “There is a lot of concentration. There is a handful of major trading venues, a handful of major lending values that you, the investing public, thinks you’re trading on or investing on,” Gensler said.

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