Regulating a Secondary Digital Asset Exchange Operator
Digital asset exchange operators must meet certain regulatory requirements. They must be licensed to operate as Recognised Market Operators (RMOs) under section 34 of the Capital Markets and Services Act (CMSA). If a company does not comply with these requirements, the Securities and Exchange Commission may fine the company or suspend its registration. There is also a requirement to provide clients with accurate and balanced information about investment risks and risks in the digital asset space.
As with traditional intermediaries, secondary digital must also meet all legal and AML requirements. For example, a DAX Operator’s system must be able to support the high degree of security needed for trading in digital assets. The operator must also have a framework to address any conflict of interest that might arise. This includes the ability to trade in digital assets by officers and employees, as well as the disclosure and management of non-public material information.
Digital assets have a number of unique characteristics, including interactivity, which can be used to better regulate manipulative practices. But a regulatory solution needs to be form-neutral and must focus on the functions of the asset as well as the outcomes. It is also important that the solution is model-neutral and does not constrain future development.
One solution is to use existing licensing rules to bring regulatory obligations to bear on digital assets. In this way, the complexities of implementing complex regulatory requirements can be addressed through the mechanisms and services provided by licensed intermediaries. However, the policy should be form-neutral and should be focused on the most effective way to achieve the overarching regulatory goals of investor protection, liquidity, settlement, and market integrity.
Regulatory approaches can help identify and resolve hurdles in the development of a regulated secondary market. These may be resolved through technological innovations, such as digital assets that are built with unique capabilities. Alternatively, these hurdles may be overcome through regulation that takes advantage of the unique qualities of the digital asset, such as the power of supervision or the powers of inspection.
To address these issues, the Securities and Exchange Commission (SC) introduced three electronic trading initiatives. Each of these focuses on a different aspect of the digital asset market. DAX exchanges are a type of electronic platform designed to facilitate the trading of cryptocurrencies, securities, and other digital assets. All three initiatives provide much-needed clarity for investors in the digital currency space.
DAX exchanges are a good start, but the digital asset market will not function without a range of other solutions. Many other models, such as security token exchanges and cryptointermediaries, are emerging. Some of them have been around for a while, while others are new. Therefore, developing a comprehensive regulated secondary market for digital assets requires an approach that is form-neutral and model-neutral.
In the meantime, traditional intermediaries can serve as a bridge between the digital asset market and the traditional financial sector, while providing the most effective execution and safeguarding client assets. Moreover, the regulatory oversight imposed on these entities can be leveraged to facilitate the participation of other regulated intermediaries in the market.