crypto derivatives

Binance Faces Lawsuit in Canada for Selling Crypto Derivative Products Without Registration

Binance, the leading players in the cryptocurrency trading industry, has been hit with a class-action lawsuit in Canada. The Ontario Superior Court of Justice has given the green light to the lawsuit, which alleges that Binance violated securities laws by selling crypto derivative products to retail investors without proper registration [1].

The plaintiffs, represented by Christopher Lochan and Jeremy Leeder, argue that Binance’s actions were in violation of the Ontario Securities Act and federal law. They claim that Binance failed to register as required by securities law and neglected to file a prospectus for the derivative products it sold to Canadian investors [2].

The certification motion for the class-action lawsuit highlights the significant presence of retail investors in cryptocurrency derivatives trading in Canada. According to the Ontario Securities Commission (OSC), over 50% of Canadian crypto owners hold at least $5,000 worth of cryptocurrency [2]. This underscores the potential impact of the lawsuit on a large number of investors.

The plaintiffs seek damages and the rescission of the unlawful derivatives trades conducted on the Binance platform. They argue that Binance’s failure to comply with registration requirements and file a prospectus renders the sales illegal and voidable [2].

Regulators have previously classified crypto contracts as securities or derivatives, bringing the marketing of such contracts under securities law. This classification has led to increased scrutiny of platforms like Binance, which offer crypto derivative products to retail investors [2].

Binance’s history with Canadian investors has already attracted regulatory attention. Despite previous pledges to cease doing business with local investors in 2021 and agreements with the Ontario Securities Commission (OSC) in 2022, Binance is still under investigation for possible violations [2]. The outcome of this lawsuit could have significant implications for the cryptocurrency industry, particularly in terms of regulatory oversight and investor protection.

It is estimated that tens of thousands of Canadian users were affected by Binance’s alleged violations. The plaintiffs argue that Binance’s actions not only violated securities laws but also had a direct impact on retail investors who purchased the crypto derivative contracts from the platform starting on September 13, 2019 [3].

Image source: Shutterstock

OKEx Adds Ether Options to Help Crypto Traders Exploit Market Volatility

Cryptocurrency exchange OKEx announced that it is adding two new services to its platform. The Malta-based exchange launched its Ether (ETH) options contracts on June 4. The exchange also announced that it will launch the EOS/USD options on June 18.

The company also stated that they have placed 1000 Ether in the Ether options insurance funds to prevent any possible clawback. The exchange is one of the largest cryptocurrency trading and derivative platforms.

Options act as a trading risk hedge

OKEx is giving crypto users more options to wager on the movement of digital assets. The two additions to the crypto exchange will allow traders to either sell or buy the underlying assets to hedge risks and maximize profits.

OKEx has managed to make a name for itself and cultivate its position in the derivatives market, offering various derivatives products like crypto futures and perpetual swaps for Bitcoin (BTC) and ETH. The crypto exchange has positioned itself as the Bitcoin futures exchange since March. The company said that such derivatives products play an irreplaceable role in maximizing profits and hedging risks.

For example, the firm explained that when the price of Ether goes down, spot traders can choose to close or hold their positions to cut losses. With Ether options, traders can choose to purchase put options and profit from declining prices to offset their losses in the spot market while holding Ether for potential future gains.

The company said that the marked prices for the contracts are determined by OKEx’s Black-Scholes model that works on real-time market data analysis. But the final settlement prices are determined by a time-weighted average of what the asset price is over a certain period of time that will occur before the contract expires.

Open contracts allow traders to sell and buy depending on the type of contract and the underlying asset, be it Ethereum or Bitcoin helps traders to hedge against risks. Investors’ interest in the cryptocurrency derivatives market has risen during this year, with open interest in Ether futures listed in major exchanges increasing by 100%.

Before the company launched the ETH/USD options, it has already introduced BTC/USD options, which have demonstrated to be a hit among crypto traders. Skew released recent data that indicates that OKEx’s BTC/USD options generated an average daily transaction volume of more than $10 million.

Derivatives products assist in hedging risks during difficult times and maximizing profits. Among several derivatives products, futures and options are the most popular ones.

OKEx is currently the largest Ether futures exchange by open interest, constituting 26% ($179 million) of the global tally of $672 million. Furthermore, recently the exchange has surpassed BitMEX to become the largest Bitcoin futures market share.

Although OKEx dominates the future products, Deribit crypto exchange dominates the options segment. However, OKEx has a lot to cover before threatening Deribit’s number one position in the options market.

OKEx makes entry into Africa

OKB is a global digital coin (token) adopted by OKEx. The boom of blockchain technology has led to the emergence of a new financial system identified as decentralized finance (DeFi). It is known that DeFi benefits people with low-cost financial services with higher reliability and efficiency.

OKEx continues working together with various partners to let OKB users access various DeFi services. In September 2019, OKEx announced its plans to enter its presence in Africa’s market. The exchange targets Africa because the continent has seen a rising mass adoption of cryptocurrencies and blockchain-related activities.

Crypto Fund Managers Infuriated with UK Watchdog's Recent Ban on Crypto Derivatives

Managers of crypto investment products have responded to the UK financial regulator’s warning to consumers against putting funds in high-risk investments.

The UK’s Financial Conduct Authority (FCA) recently imposed a ban on the sale of crypto-related derivatives to retail investors, which included exchange-traded notes (ETN). Last week, the regulator also renewed its warning that anybody investing in cryptocurrencies should welcome the idea that they may potentially lose all their funds.

Crypto managers have responded to the FCA’s statement, saying that such warnings, as well as its new ban, were short-sighted. In fact, they believed that the warnings were likely to increase harm to retail investors, and cause wider market demand, with institutional investors reverting to other means to obtain crypto-asset investments.

Townsend Lansing, the head of product at CoinShares crypto exchange that manages the XBT range of ETNs, said:

“The FCA’s initiative will do little to hinder digital asset adoption overall, but represents significant disadvantage for UK investors.”

Lansing further added: “We believe that although digital assets are indeed innovative, wrapping them into exchange-traded products is a fairly normal extension of the industry’s unique ability to offer exchange-traded access to a diverse set of underlyings.”

Hector McNeil, co-founder of HANetf exchange that offers Bitcoin exchange-traded crypto, also commented on the ban of exchange-traded notes from the FCA, stating:

“The FCA’s decision has basically pushed retail investors from a regulated product on a regulated exchange to the wild west underlying crypto markets.”

McNeil further mentioned that the regulatory authority was moving UK investors from “a regulated environment on to unregulated markets and market infrastructure where abuse, fraud and errors will be significantly increased”.

Piling onto the list of concerns, Adrian Whelan, a senior Vice President and head of regulatory intelligence for investor services at Brown Brothers Harriman investment management firm, stated:

“On the one hand, regulators are moving quickly to implement a solid foundation of laws and regulation for crypto investing, while at the same time they have taken enforcement actions and banned some corners of the crypto market.”

The UK Ban May Stifle Innovation

Early October last year, the UK’s financial regulator announced a ban of the sales of crypto derivatives and exchange-traded notes (ETNs) to retail consumers. The Financial Conduct Authority said that the ban was necessary because crypto derivatives products being offered on exchanges were “ill-suited for retail consumers due to the harm they pose”.

The ban took effect on 6th January and the regulator issued fresh warnings to UK residents and citizens to be wary of crypto-derivative investments scams.

The UK ban has been implemented after rapid growth in crypto investment products over the past year. European mutual funds, ETPs, ETCs, and ETNs investing in crypto assets witnessed “assets under management” surge five-fold in value in 2020, increasing from €470 million to €2.3 billion over the year. Firms offering crypto products have predicted that growth would continue despite the volatility of digital assets.

BitMEX CEO Arthur Hayes Agrees to Surrender to U.S. Authorities

Fugitive executives of crypto derivatives exchange BitMEX have been discussing a surrender agreement with the U.S. government.

Last October, BitMEX CEO Arthur Hayes and four of the exchange’s executives and co-owners were charged by the U.S Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) for violating the Bank Secrecy Act and for money laundering.

Currently, Hayes is residing in Singapore, but per court transcripts obtained by sources familiar with the talks, the former BitMEX CEO will surrender to the U.S. government on April 6, in Hawaii. According to Jessica Greenwood, the U.S. assistant attorney in charge of the case, Hayes intends to continue living abroad, but has agreed to appear in New York for trial if needed.

She said: “We have discussed with counsel how to arrange for a voluntary surrender, and he has proposed appearing within the United States in Hawaii and having his initial appearance there and then […] The idea would be that he would appear initially in Hawaii, then appear before your Honor remotely. And then he would continue to reside abroad with travel to the United States for appearances as needed.”

Greenwood also disclosed that Ben Delo, BitMEX’s co-owner, will potentially surrender in New York at the end of the month. As for the remaining defendants, it is uncertain whether they will cooperate with US authorities like Hayes and Delo and surrender. Currently, talks as to how and when they will appear are still being worked out.

BitMEX charged by CFTC and DoJ

Last October, the CFTC charged BitMEX lead officials for illegally operating in the United States. A civil enforcement action was filed against CEO Arthur Hayes, and co-founders Samuel Reed and Ben Delo. The CFTC accused them of failing to implement mandatory Know-Your-Client (KYC) regulations and anti-money laundering (AML) policies.

Per the official complaint, the CFTC alleges that BitMEX was illegally offering leverage retail commodity transactions, options, futures, and swaps on cryptocurrencies – enabling platform users to employ leverages of up to 100x and generate exaggerated profits from minor fluctuations in crypto prices.

Following the lawsuit, Arthur Hayes stepped down from his role as Chief Executive Officer of the crypto company.

BitMEX Founder Ben Delo Surrenders and Will Face Trial on Charges of Failing to Implement AML Programs

Normal
0

false
false
false

EN-US
X-NONE
X-NONE

Benjamin Delo, a co-founder of BitMEX crypto derivatives exchange, has surrendered himself to US authorities to face bank secrecy charges.

Benjamin Delo, a British citizen, was wanted on charges of violating US anti-money laundering laws by failing to implement them at BitMEX. Delo is an Oxford-educated computer scientist who in the past created high-frequency trading systems for JPMorgan Chase & Co. He founded BitMEX with Samuel Reed and Arthur Hayes in 2014.

Delo’s surrender agreement was reportedly negotiated with federal prosecutors in collaboration with the Federal Bureau of Investigation and US Custom and Border Patrol. As a result, Delo flew from the UK to New York city where he was arraigned in a remote court proceeding before US Magistrate judge Sarah L. Cave on Monday March 15.

Delo pleaded not guilty to failing to implement anti-money laundering (AML) programs at BitMEX as well as conspiracy to commit the Bank Secrecy Act violations. He was released on a $20 million bail bond and allowed to return to the UK to await trial.

US authorities allege that BitMEX executives failed to put in place required anti-money laundering and know-your-customer procedures and allowed customers to open accounts and deposit Bitcoin without verifying the locations or identity of most users. According to the indictment document, “As a result of its failure to implement [anti-money laundering] and [know-your-customer] programs, BitMEX made itself available as a vehicle for money laundering and sanctions violations.”

Prosecutors said that the Delo even “personally communicated with BitMEX customers who self-identified as Iranian.” The US imposed sanctions against Iran in response to the Iranian nuclear program and Iranian support for terrorist organizations including Hamas, Hezbollah, and Palestine Islamic Jihad.

Seeking Delay in Trial

Delo is the second BitMEX executive to be arraigned on such charges. In October last year, co-founder and Chief Technology Officer, Samuel Reed, was arrested in Massachusetts shortly after the US Department of Justice (DoJ) and Commodity Futures Trading Commission (CFTC) pressed charges against BitMEX for violating AML and KYC regulations and running an unregistered trading platform. Reed was subsequently released on bail.

Two BitMEX executives are still at large. BitMEX CEO Arthur Hayes is reported to have been negotiating his surrender from Singapore where he has been residing since the indictment was announced in October. In a February hearing, federal prosecutors said that Hayes was in Singapore and has discussed surrendering in Hawaii in early April.

However, a fourth defendant, Gregory Dwyer, who is a senior employee at BitMEX and the head of business development at the exchange, is still at large. He is believed to be in Bermuda and is reportedly not engaging in negotiations with authorities, who were seeking his extradition from the Caribbean country.

/* Style Definitions */
table.MsoNormalTable
{mso-style-name:”Table Normal”;
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:””;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin-top:0in;
mso-para-margin-right:0in;
mso-para-margin-bottom:8.0pt;
mso-para-margin-left:0in;
line-height:107%;
mso-pagination:widow-orphan;
font-size:11.0pt;
font-family:”Calibri”,sans-serif;
mso-ascii-font-family:Calibri;
mso-ascii-theme-font:minor-latin;
mso-hansi-font-family:Calibri;
mso-hansi-theme-font:minor-latin;
mso-bidi-font-family:”Times New Roman”;
mso-bidi-theme-font:minor-bidi;}

Miami International Holdings Partners with Lukka, Launching Crypto Derivatives

Miami International Holdings, Inc. (MIH), the owner of Miami International Securities Exchange and a blockchain data company Lukka Inc, announced on Wednesday that they have entered into a strategic cooperation to launch crypto derivatives on MIH exchange platforms based on Lukka-supplied crypto data.

Miami International Holdings, Inc is also the owner of other options and equities trading platforms, namely, MIAX PEARL, LLC, MIAX Emerald, LLC, Minneapolis Grain Exchange, LLC, and Bermuda Stock Exchange.

The agreement provides MIH with a multi-year global license to use Lukka data to support its exchange-listed crypto derivative products, to be offered for trading on any of MIH exchange platforms.

MIH and Lukka expect the first products to include cash-settled Bitcoin and Ether futures and options, which will be listed on MGEX via the CME Globex® trading platform, subject to regulatory approval.

Other products expected to be listed will include Bitcoin Volatility (BitVol) and Ether Volatility (EthVol) futures and options, also subject to regulatory approval.

Thomas P. Gallagher, Chairman and CEO of MIH, talked about the development: “Our strategic alliance with Lukka allows us to leverage its institutional-grade crypto data to develop proprietary products in the U.S. and international regulatory frameworks that meet the emerging needs of the crypto-asset ecosystem. Lukka provides us with access to unique data and indexes that will further our objectives to introduce digital assets and products through our global group of exchanges, including futures on MGEX and innovative digital assets on BSX.”

The Retail Trend Getting Real

The movement by MIH and Lukka is the latest example showing crypto groups are pushing into the highly regulated U.S. derivatives market as they seek to fulfil demand from retail traders making massive bets on digital assets.

The crypto industry is shifting deeper into regulated markets. It looks to develop a bigger user base and challenge existing financial companies like brokerages that already provide trading in equities and other financial assets.

Crypto groups are now seeking to develop footprints in the tightly supervised U.S. market by acquiring smaller firms already holding licenses to operate in America.

In January, Coinbase bought FairX, a small Chicago futures exchange, to make the derivatives market “more approachable” through its trading app.

Late last year, the move came after Crypto.com struck a $216 million deal for two retail businesses from the U.K.’s I.G. Index. In October last year, FTX US also acquired derivatives platform LedgerX.

Bigger crypto exchanges are buying Commodity Futures Trading Commission-regulated platforms that allow the offering of derivatives like options and futures to retail clients because there is a big demand for leveraged products in the retail client segment.

Last year marked a breakthrough for crypto derivatives. Volumes in the derivatives market overtook the spot or cash market for the first time. In January, derivatives trading represented about three-fifths of the overall market. In February, volumes in crypto derivatives registered almost $3 trillion, accounting for more than 60% of trading in cryptocurrencies, according to data provider CryptoCompare.

TP Global FX Broker Taps Belfrics International to Trade Crypto Derivatives

TP Global Limited, a Mauritius regulated award-winning, new-age Foreign Exchange (FX) brokerage firm, announced on Friday that it has selected Belfrics International to enable it to offer crypto derivatives and blockchain solutions to its customers.

Belfrics International is a global blockchain technology firm that runs cryptocurrency exchanges on its proprietary platform.

TP Global signed a partnership MOU with Belfrics International to facilitate the deal. Based on the collaboration, TP Global will offer crypto futures and options trading to enable investors to trade volatility directly and protect against downside risks.

The launch coincides with the ongoing highly volatile period in the crypto market triggered by the dramatic fall of Terra’s LUNA stablecoin and the collapse of recent crypto lending platforms including Celsius Networks, Voyager Digital, among others.

Nitish Sharma, Global CEO, TP Global FX, talked about the development: “With the growing demands of the Crypto derivatives industry, our users needed our services more than ever. After carefully evaluating our options, we decided to partner with Belfrics offered the best solution. We believe trading in Crypto Derivatives will see massive growth as cryptocurrencies gain popularity all over the world. We had planned to enter the ecosystem of cryptocurrencies and have found an able partner in Belfrics who will not only support us in crypto liquidity, but also with blockchain solutions to expand our services to new domains.”

Established in 2014, TP Global FX Limited is a major online FX trading broker that has footprints in the Middle East and African region and recently entered the South American and South East Asian markets. TP Global FX has offices in Europe, Africa, Mauritius, Nigeria, Armenia, Vanuatu, and Dubai.

Praveen Kumar, Belfrics CEO and Founder, also commented: “We are proud to partner with FX broker TP Global on Belfrics’ crypto derivatives and blockchain solutions. This strategic partnership is in line with our strategy of increasing our B2B services, and it will support our goal of adding traders and investors to the Belfrics Exchange. We have great expectations for our collaboration in strengthening and promoting our ability to provide global trading in digital assets, cryptocurrencies, and crypto derivative contracts, as well as our KYC compliant blockchain solutions.”

Belfrics operates its cryptocurrency exchanges on its proprietary trading platform on its global KYC blockchain, which is licensed and regulated by the Labuan Financial Services Authority (LFSA) in Malaysia.

CFTC's New Enforcement Action Raises Jurisdictional Concerns Over Crypto Derivatives

The Commodity Futures Trading Commission (CFTC), a regulatory body overseeing commodity and derivatives markets in the United States, has once again asserted its authority in the rapidly evolving world of cryptocurrency. On March 26, 2024, the CFTC filed a complaint in the U.S. District Court for the Southern District of New York, taking action against an unnamed entity for alleged unregistered crypto asset derivatives trading and other legal violations. This move is part of a broader effort to regulate the crypto market, which has been marked by a surge in trading activities and increased scrutiny from various regulatory agencies.

CFTC Commissioner Caroline D. Pham responded to this enforcement action with a public statement that both commends the vigilance of the Division of Enforcement and raises significant concerns regarding the potential overreach of CFTC jurisdiction. Commissioner Pham’s critique highlights a critical issue at the intersection of regulatory authorities: the delineation of responsibilities between the CFTC and the Securities and Exchange Commission (SEC).

The ambiguity stems from the complaint’s interpretation of fund shares, which are typically considered securities and fall under the SEC’s remit, as equating to leveraged trading under section 2(c)(2)(D) of the Commodity Exchange Act. This interpretation, according to Pham, blurs the lines between the act of investing in a fund and the trading activities conducted by the fund. The former is a security investment, while the latter pertains to derivatives trading, which is within the CFTC’s jurisdiction.

Commissioner Pham’s statement expresses concern that this approach by the CFTC could infringe upon the SEC’s authority, potentially disrupting long-standing investor protection laws. She underscores the importance of maintaining a clear distinction between a financial instrument (owning shares in a fund) and a financial activity (trading derivatives), cautioning that conflating the two could destabilize the foundations of the securities markets.

This case is indicative of the growing pains within the regulatory framework as it adapts to the complexities introduced by the digital asset space. It highlights the need for clarity and collaboration between the CFTC and SEC to ensure that the markets are adequately regulated without overlapping jurisdictions that could lead to inefficiencies and legal uncertainties.

In the broader context, the crypto market has been under increased regulatory scrutiny, with various agencies seeking to establish clear guidelines for market participants. The SEC has been particularly active, pursuing numerous enforcement actions against Initial Coin Offerings (ICOs) and crypto-based investment products.

As the regulatory landscape continues to evolve, the industry and investors alike are closely watching the developments for indications of how U.S. authorities will balance the promotion of innovation against the need for market integrity and investor protection. The ongoing jurisdictional discussion is a key aspect of this balance and will likely shape the future regulatory approach towards crypto assets in the United States.

Commissioner Pham’s statement offers a window into the internal debates and the complexity of regulating a market that defies traditional categorization. It serves as a reminder of the challenges regulators face in adapting old laws to new financial technologies and the importance of clear regulatory boundaries to maintain market stability and protect investors.