Decentralized Finance: Regulating Cryptocurrency Exchanges
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TLDR
In this paper, the authors propose formal registration obligations for cryptocurrency intermediaries, i.e., the exchange platforms that provide a marketplace for secondary market trading, to protect investors from fraud, theft, misconduct, and manipulation; enforcing accountability; preserving market integrity; and addressing enterprise and systemic risk management concerns.Abstract:
Global financial markets are in the midst of a transformative movement. The creation of Bitcoin and Facebook’s proposed distribution of Diem mark a watershed moment in the evolution of the financial markets ecosystem. Purportedly, peer-to-peer distributed digital ledger technology eliminates legacy financial market intermediaries such as investment banks, depository banks, exchanges, clearinghouses, and broker-dealers.
Yet careful examination reveals that cryptocurrency issuers and the firms that offer secondary market cryptocurrency trading services have not quite lived up to their promise. Notwithstanding cryptoenthusiasts’ calls for disintermediation, evidence reveals that platforms that facilitate cryptocurrency trading frequently employ the long-adopted intermediation practices of their traditional counterparts. In fact, when emerging technologies fail, cryptocoin and token trading platforms partner with and rely on traditional financial services firms. As a result, these platforms face many of the risk-management threats that have plagued conventional financial institutions as well as a host of underexplored threats. Automated or algorithmic trading strategies, accelerated high frequency trading tactics, and sophisticated Ocean’s Eleven-style cyberheists leave crypto investors vulnerable to predatory practices.
Early responses to fraud, misconduct, and manipulation emphasize intervention when originators first distribute cryptocurrencies— the initial coin offerings. This Article rejects the dominant regulatory narrative that prioritizes oversight of primary market transactions. Instead, this Article proposes that regulators introduce formal registration obligations for cryptocurrency intermediaries —the exchange platforms that provide a marketplace for secondary market trading. This approach recognizes the dynamic nature of cryptocurrency secondary market actors seeking to achieve disintermediation yet balances the potential benefits of trading intermediaries with normative regulatory goals—protecting investors from fraud, theft, misconduct, and manipulation; enforcing accountability; preserving market integrity; and addressing enterprise and systemic risk management concernsread more
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References
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License to Deal: Mandatory Approval of Complex Financial Products
TL;DR: In this article, the authors present the first comprehensive analysis of one particular method of ex ante regulation, namely mandatory pre-market product approval, and its potential applicability to complex financial instruments, including derivatives, asset-backed securities, and other structured products.
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Macroprudential Regulation: A Sustainable Approach to Regulating Financial Markets
TL;DR: In this paper, the authors argue that the culture of financial institutions may lead board to govern these businesses less effectively than boards in non-financial sectors, and they challenge assumptions that conventional regulatory or corporate governance mechanisms will conclusively address systemic risk concerns in the financial sector.
Posted Content
Securities Underwriters in Public Capital Markets: The Existence, Parameters and Consequences of the Fiduciary Obligation to Avoid Conflicts
TL;DR: In this paper, the authors consider whether an investment bank, when acting as underwriter of a public securities offering, owes the issuing company the fiduciary obligation to avoid conflicts of interest.
Journal ArticleDOI
Securities Underwriters in Public Capital Markets: The Existence, Parameters and Consequences of the Fiduciary Obligation to Avoid Conflicts
TL;DR: In this paper, the authors consider whether an investment bank, when acting as underwriter of a public securities offering, owes the issuing company the fiduciary obligation to avoid conflicts of interest.