By Coinbase Trade Surveillance Team
One of the most widespread misconceptions about crypto is that it is an uncontrolled space, market manipulation, internal trading and bad actors. The reality is that it is far from the truth. Crypto is indeed highly regulated, and good actors in space are proud to work with regulators worldwide to ensure the safety and security of their customers and their funds.
Coinbase is overseen by more than 50 regulators in the United States alone. Worldwide, this number continues to grow. Our goal is to be the most trusted place in the world to communicate with the crypto economy. The key to this commitment to gaining the trust of our customers is to not only hold ourselves to the highest level of regulatory compliance, but also to achieve performance in terms of internal control and employee behavior.
Since the founding of Coinbase in 2012, we have been leaning towards compliance. These include data protection, ongoing training sessions and a range of internal controls around well-documented policies. Of these principles, the most important one is our internal trading policy. This document defines how, when and what assets Coinbase employees, consultants, contractors and board managers may trade, in order to ensure that these groups cannot trade while possessing material non-public information (MNPI).
Like all publicly traded companies, Coinbase restricts when employees and other insiders can buy or sell the company’s stock. For example, employees and company insiders are only allowed to trade in very short trading windows, directly following our public earnings calls, when they do not have MNPI, or through pre-approved and pre-determined 10b5–1 plans.
Similarly, when it comes to crypto, our internal trading policies are designed in such a way that anyone associated with the company can trade crypto assets (including NFT) with information that is not public. This includes knowledge that may add or remove an asset from our trading platform, we will provide new features or services based on an asset (this may include stacking or product integration), or other information that may affect (Positive or negative) The value of the asset. To ensure that employees and others covered by this policy may and may not trade the assets at certain times, we have a regularly updated list of limited digital assets. In addition, employees who have broad insights into the entire company (senior executives, some members of our legal, compliance and communications team, for example) are in favor of an “extended” insider trading policy that includes complementary oversight such as quarterly attestation, pre-Coinbase Platform, As well as the disclosure of business made from additional monitoring.
As an additional layer of application, Coinbase also orders that all employees and board of directors trade crypto Only On Coinbase’s trading platform (unless the assets they want to trade are not supported by Coinbase in their region). This additional step is important for two reasons: First, it means we can Actively Disable trading on specific assets, at specific times, for specific employees. Second, it means that we have full visibility into the business behavior of our employees and board managers – a significant difference between traditional exchange exchanges and spot markets that encourage employees to trade on platforms other than the one they operate on.
In addition to the restrictions mentioned above, Coinbase prohibits the use of trading algorithms by employees on all Coinbase platforms.
The obligation of employees to trade exclusively on the Coinbase platform enables our trade surveillance team to monitor prohibited trading activities – such as market manipulation. Market manipulation can take many forms, but is broadly defined as the activity undertaken by a market participant or a person performing in a concert with a participant that is intended to:
- Deceive or mislead other traders;
- Artificially controlling or manipulating the value of assets or trading volumes; Or
- Help, support, enable, finance, support, or endorse any of the above. This may include actions outside of Coinbase Pro / Exchange and / or Coinbase Pro / Exchange.
Much like traditional traditional financial markets, certain forms of market manipulation that Coinbase prohibits include:
- Wash Trading: A form of market manipulation where an investor sells and buys the same financial instruments to create confusing, artificial activity in the market at the same time.
- Trade fraud: Fake or unreliable tenders and offers are a practice that seeks to push the market in a certain direction in order to execute bona fide contra-side orders. Non-trustworthy orders are then revoked.
- Trade Layering: Like spoofing, layering is the practice of placing unreliable orders to influence or push the market to execute real orders. The main difference is that instead of placing a large counterfeit or unreliable order on the order book (spoofing), multiple orders are placed at different price points. Like spoofing, once the original or disobedient order is executed, the fake order is revoked.
- Moving forward: When you run a trade (a buy or a sale) you have the knowledge that a trade or business group will soon follow.
- Brainstorming: The practice of conducting business for an investment account by a trader or broker to generate commissions from the account.
- Quote stuffing: API or a form of market manipulation employed by algorithmic traders to quickly enter and withdraw a large number of orders in an attempt to enter the market.
Trade monitoring and surveillance
Coinbase takes trade monitoring and surveillance very seriously. Our trade surveillance team brings a range of experiences including former regulators, multinationals, bulge-bracket banks and broker-dealers, technology companies and crypto experts.
People + technology
Underpinning our trade surveillance team is a state-of-the-art surveillance technology called Eventus. The platform uses artificial intelligence and machine learning techniques to provide 24/7/365 monitoring across all trading platforms in Coinbase so that manual tracking cannot be done alone. Unlike conventional market surveillance, which is often done forensically after the fact, the Eventus platform provides our trade monitoring team with real-time insights that can be worked out quickly and often quickly.
Coinbase aims to provide our customers with the most reliable, secure and secure place to access the crypto economy. Consent, market integrity and surveillance are key elements of this approach and we are proud of what we have created. As with anything, we will continue to improve our systems over time and look forward to sharing these updates as they happen.
How Coinbase thinks about market integrity and trade surveillance was originally published in the medium on The Coinbase blog, where people continue the conversation by highlighting and responding to the story.