BLG BUSINESS VENTURE CLINIC
  • Home
  • About
  • Clients
  • Resources
    • Links
    • Videos
  • Blog
  • Contact
    • Clinic Schedule

BLOG POSTS

Cryptocurrency Exchange Rules

4/15/2019

8 Comments

 
A Summary of Proposed New Rules for Cryptocurrency Exchanges
Cryptocurrency exchanges, depending on how they operate and the crypto assets they make available for trading, may already be subject to securities and/or derivatives regulation. Canadian regulators are proposing new rules to govern cryptocurrency exchanges aimed to curtail the risks associated with those trading platforms. The consultation paper was published on March 14, 2019 and can be found here:
https://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20190314_21-402_crypto-asset-trading-platforms.htm
At the time of writing this, it’s unclear when any new regulations would come into effect.
Part 3 of the Proposed Regulations: Risks Related to Platforms
Any start-up considering crypto assets, as a potential avenue for financing, need to be aware of the risks associated with these Platforms.[1] These include:
  • Investors' crypto assets may not be adequately safeguarded
  • Processes, policies and procedures may be inadequate
  • Investors' assets may be at risk in the event of a Platform's bankruptcy or insolvency
  • Investors may not have important information about the crypto assets that are available for trading on the Platform
  • Investors may not have important information about the Platform's operations
  • Investors may purchase products that are not suitable for them
  • Conflicts of interest may not be appropriately managed
  • Manipulative and deceptive trading may occur
  • There may not be transparency of order and trade information
  • System resiliency, integrity and security controls may be inadequate
PART 5 of the Proposed Regulations: The Proposed Platform Framework
The regulators are looking to have Platforms that build consumer confidence, expand business in Canada and globally, foster greater market integrity, provide clarity, and protect investors.[2] These are objectives are similar to those of traditional exchanges such as the TSX and the TSX-V. Currently there are no Platforms recognized as an exchange or otherwise authorized to operate as a marketplace or dealer in Canada.[3]
The consultation paper seeks input from the fintech community, market participants, investors and other stakeholders looking at how regulatory requirements may be tailored for crypto-asset trading Platforms operating in Canada. Comments are due by May 15, 2019 and include the following areas:
5.2.1 Custody and Verification of Assets
The regulations contemplate requiring that Platforms obtain SOC Type II reports as well as yet-to-be determined standards specific to crypto assets if they are seeking registration as an investment dealer and IIROC membership.
Traditional custodians that hold assets for clients typically engage an independent auditor to perform an audit of the custodian's internal controls and prepare an assurance report, such as SOC 1 and SOC 2 Reports, pertaining to the design of the controls (Type I Report) and a report assessing whether such controls are operating as intended (Type II Report).
There have been challenges with crypto asset custodians and Platforms obtaining SOC 2, Type II Reports, in part due to the novel nature of crypto asset custody solutions and the limited period of time that Platforms have been in operation to allow for the testing of internal controls.
5.2.2 Price Determination
Platforms will be required to foster price discovery for the crypto assets they offer for trading. Where the Platform or an affiliate acts as a market maker and provides quotes, the mechanisms for determining those quotes are expected to be available to participants. When trading as a market maker against its participants, a Platform will also be required to provide participants with a fair price.
5.2.3 Market Surveillance
The regulations propose that Platforms not permit dark trading or short selling activities, or extend margin to their participants.
The existing types of marketplaces have different regulatory responsibilities. Exchanges are responsible for conducting market surveillance of trading activities on the exchange and enforcing market integrity rules. All of the existing equity exchanges have retained IIROC to monitor trading activity and enforce market integrity rules.
Alternative trading systems, by contrast, are not permitted to conduct market surveillance or enforcement activities and are required to engage a regulation services provider (RSP). IIROC currently acts as an RSP to all equity and fixed income marketplaces.
5.2.4 Systems and Business Continuity Planning
Marketplaces are currently required to:
  • have adequate internal and information technology controls over their trading, surveillance and clearing systems and information security controls that relate to security threats and cyber-attacks;
  • maintain business continuity and disaster recovery plans to provide uninterrupted provision of key services;
  • ensure that marketplaces have adequate internal and technology controls in place over their trading, surveillance and clearing systems and that their systems function as designed, marketplaces are required to engage an entity with relevant experience both in information technology and in the evaluation of related internal controls to conduct an independent systems review (ISR).
Platforms will also be required to comply with the systems and business continuity planning requirements applicable to existing marketplaces in NI 21-101.
5.2.5 Conflicts of Interest
Platforms will be required to identify and manage potential conflicts of interest and will be required to disclose whether they trade against their participants, including acting as a market maker, and the associated conflicts of interest. To the extent Platforms are required to become IIROC Members, they will also be subject to requirements in the Universal Market Integrity Rules aimed at mitigating the risks associated with trading against their participants.
5.2.6 Crypto-asset Insurance
Dealers are required to maintain bonding or insurance against specific risks and in specified amounts. This requirement may not address the specific operational risks of Platforms.
There may be significant difficulty and costs for a Platform to obtain insurance, in part due to the limited number of crypto asset insurance providers, and the high risk of cyber-attacks. Therefore, some Platforms have indicated that they are considering limited coverage that only extends to certain crypto assets, crypto assets in "hot wallets" or "cold wallets", loss as result of hacking, or loss from insider theft.
5.2.7 Clearing and Settlement
All trades executed on a marketplace are required to be reported and settled through a clearing agency.
Without exemptive relief, this requirement would also apply to Platforms that are marketplaces. However, currently there are no regulated clearing agencies for crypto assets that are securities or derivatives.
The regulators are considering whether an exemption from the requirement to report and settle trades through a clearing agency is appropriate. In these circumstances, Platforms will still be subject to certain requirements applicable to clearing agencies and will therefore be required to have policies, procedures and controls to address certain risks including operational, custody, liquidity, investment and credit risk. The Regulators plan to revisit such exemptions in the future, as the space continues to develop and evolve.
Some Platforms may operate a non-custodial (decentralized) model where the transfer of crypto assets that are securities or derivatives occurs between the two parties of a trade on a decentralized blockchain protocol (e.g. smart contract). These types of Platforms will be required to have controls in place to address the specific technology and operational risks of the Platform.
Criticism
Evan Thomas, a lawyer at Osler, Hoskin & Harcourt LLP who specializes in blockchain technology warns that “the cost, time and other practical difficulties of complying with many of the regulatory requirements contemplated by the paper would effectively shut out many innovative crypto asset trading platforms from the Canadian market.”[4]

Colin Patterson is a third year student at the Faculty of Law, University of Calgary, and is a JD and CPA candidate.

References
[1] https://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20190314_21-402_crypto-asset-trading-platforms.htm
[2] https://www.osc.gov.on.ca/en/NewsEvents_nr_20190314_csa-consult-on-regulatory-framework-crypto-asset-trading-platforms.htm
[3] Supra note 1
[4] https://www.theglobeandmail.com/business/article-canadian-regulators-propose-framework-to-govern-cryptocurrency/

8 Comments
pre med courses link
12/2/2021 09:28:47 pm

I'm amazed, to say the least. It's uncommon that I find a blog that is both informative and enjoyable.

Reply
Anchal link
1/29/2022 03:34:08 am

Thanks For The Information.

Reply
Gunjan link
1/29/2022 04:20:44 am

Good To Know About Cryptocurrency Exchange Rules.

Reply
Somya link
1/31/2022 01:26:28 am

Thanks For Sharing This Article.

Reply
Vanshika link
1/31/2022 01:30:01 am

Thanks For Sharing These Cryptocurrency Exchange Rules.

Reply
Pratibha link
1/31/2022 03:35:57 am

Thanks For sharing these Rules.

Reply
David link
3/23/2022 11:10:56 pm

Most people are complaining about the Pandemic disaster, they cannot afford to pay bills because their salary is not much. Worry no more as i have found a solution that will help bring in extra cash. So I saw a review on Cryptocurrency investment and i decided to try it with $ 1,300 even though there are lower cost of investment, I decided to start from the range of $ 1,000 and to my greatest surprise i made over $7,420.00 in a week time. Unknown to me the Brokeage company has good set of efficient market professionals that will make your earnings measure up every week with you making good profits in high value assets most especially Bitcoin. it was unbelievable at first because I never believed it until I gave it a trial that is why I need to post an epistle of this online.
They operate a very good Investment package that you can choose from of which is within your financial power.

They have 4 types of investment plans

MINI PLAN - Minimum investment of $ 500 and minimum profit of $ 4,500 guaranteed weekly

STANDARD PLAN: minimum investment of $1,300 with minimum profit of $ 7,420 guaranteed weekly

EXECUTIVE PLAN - Minimum investment of $ 3,200 with minimum profit of $ 12,420 guaranteed weekly

VIP PLAN - Minimum investment of $ 4,350 with minimum profit of $15,830 guaranteed weekly.

Investors in this company enjoys 100% weekly profits, transparency and efficient reliability. You can trust these sets of market professionals with your investments without any doubt.
You reach them on WhatsApp +1 (848) 204 1178.
Email:Fredericaalonso22@gmail.com

Reply
MckimmeCue link
5/28/2022 09:28:30 am

What an exquisite article! Your post is very helpful right now. Thank you for sharing this informative one.
If you are looking for coupon codes and deals just visit coupon plus deals dot com

Reply



Leave a Reply.

    BVC Blogs

    Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.

    Categories

    All
    ABCA
    Agreements
    Civil Liability
    Confidentiality
    Contractor
    Contracts
    Directors
    Dispute Resolution
    Employee
    Employment Law
    Force Majeur
    Incorporation
    Indemnification
    Jurisdiction
    Licensing
    Non-Compete
    Patents
    Security Interests
    Shareholder Agreement
    Software
    Startup
    USA
    Warranties

    RSS Feed

    Archives

    January 2023
    November 2022
    October 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    August 2020
    May 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    April 2019
    March 2019
    February 2019
    January 2019
    November 2018
    October 2018
    May 2018
    April 2018
    March 2018
    February 2018
    November 2017
    October 2017
    August 2017

Terms and Conditions | Privacy Statement
 © 2019 University of Calgary. All rights reserved.
  • Home
  • About
  • Clients
  • Resources
    • Links
    • Videos
  • Blog
  • Contact
    • Clinic Schedule