Bitcoin Industry

Cryptocurrency Exchange Gemini Joins Nasdaq to Surveil for Market Manipulation

Thomas Delahunty | April 25, 2018 | 5:20 pm
Nasdaq
Bitcoin

Cryptocurrency Exchange Gemini Joins Nasdaq to Surveil for Market Manipulation

Thomas Delahunty | April 25, 2018 | 5:20 pm

Gemini, the cryptocurrency exchange founded by Cameron and Tyler Winklevoss, will utilize Nasdaq technology to monitor for trading manipulation.

Under the agreement, the exchange will use Nasdaq’s surveillance software, called SMARTS, to monitor its markets for potentially abusive trading practices. The two companies announced the agreement on Wednesday, according to Bloomberg. Financial details have yet to be released.

The partnership comes as U.S. regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CTFC) are more closely scrutinizing the cryptosphere to root out bad actors, and is the first time the cryptocurrency industry has deployed a well-established surveillance system to root out misbehavior, specifically market manipulation.

“We’re doing this because we believe in the importance of creating a rules-based marketplace,” Cameron Winklevoss, president and co-founder of Gemini, said. “We believe this is where things are headed.”

SMARTS

SMARTS is part of Nasdaq’s market-technology business, in which the New York-based exchange group sells software to other market operators. Although this is the first time it will be applied to crypto, the surveillance technology is already used by equities and derivatives exchanges around the world, including Intercontinental Exchange Inc., Hong Kong Exchanges and Clearing Ltd., and the Nigerian Stock Exchange.

How does it work? Nasdaq’s technology monitors real-time market activity and raises alerts if it detects unusual trading patterns. If flags are raised, further steps are then taken to determine whether the traders behind the patterns broke any rules.

At Gemini, SMARTS will help monitor trading of Bitcoin and Ethereum. It will also surveil the auctions that the exchange holds at 4:00 p.m. ET to determine a daily benchmark price for Bitcoin, which is used to help price Cboe’s futures, according to a statement released today.

Unlike some of its competitors, Gemini appears to be taking a more traditional approach to policing its venue. The exchange ‘has aggressively pursued comprehensive compliance and surveillance programs,’ Gemini CEO and co-founder Tyler Winklevoss said.

The company believes trading surveillance ‘betters our exchange and the cryptocurrency industry as a whole.’

Nasdaq

For Nasdaq, the Gemini partnership isn’t its first foray into the cryptocurrency space. The exchange group has said it is exploring the launch of its own Bitcoin futures. It is also involved in a few other projects that use blockchain, the technology that underpins cryptocurrencies, for the trading of private shares and shareholder voting.

Gemini aside, Nasdaq is also in ‘active discussions’ with a number of other cryptocurrency firms regarding SMARTS, according to Chief Executive Adena Friedman. ‘The crypto space is a nice growth area,’ she said.

In related Nasdaq news today, according to Friedman, once the industry matures the stock exchange is open to becoming a platform for trading cryptocurrencies:

“Certainly Nasdaq would consider becoming a cryptocurrency exchange,” Friedman told CNBC’s Squawk Box today. “I believe that digital currencies will continue to persist it’s just a matter of how long it will take for that space to mature,” she continued. “Once you look at it and say, ‘do we want to provide a regulated market for this?’ Certainly Nasdaq would consider it.”

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