US bitcoin exchange Gemini proposes Virtual Commodity Association
The U.S. registered bitcoin and ether exchange Gemini today put forth proposals for a new self-regulatory organization which would be called the Virtual Commodity Association (VCA), for the United States virtual currency industry, specifically virtual commodity exchange platforms and custodians.
Founders of Gemini, Tyler, and Cameron Winklevoss noted, “we believe adding an additional layer of oversight on virtual commodity cash markets, in the form of self-regulation, is important for consumer protection and to ensure the integrity of these markets.”
They envision the VCA to be a non-profit, independent regulatory organization that does not operate any markets, will not be a trade association, will not provide regulatory programs for security tokens or security token platforms, and will be in compliance with global standards and best practices for SROs.
Below is their outlined suggestions.
- Foster financially sound, responsible, and innovative virtual commodity markets through a system of industry-sponsored standards, sound practices, and oversight that promotes price discovery, efficiency, and transparency.
- Incentivize the detection and deterrence of manipulative and fraudulent acts and practices, including partnering with regulators and particularly the CFTC to share or refer information, as appropriate.
- Require member firms to commit in writing, upon joining VCA, to operating their virtual commodity markets in compliance with Sound Practices, described below; and provide sanctions based accountability program to compel ongoing member compliance.
STRUCTURE – MEMBERSHIP AND GOVERNANCE
- Open for membership to virtual commodity platforms, over-the-counter (OTC) trading firms, and other trading facilities acting as counterparties that:
- Provide an all-to-all platform or venue, available to U.S. participants, for transacting in the spot virtual commodity markets; or
- Provide OTC or off-exchange services, available to U.S. participants, for transacting in the spot virtual commodity markets.
- When applicable, the entities must otherwise be in compliance with and have obtained relevant licenses required to operate a business that involves holding customer fiat funds and the custody of customer virtual commodities.
- To be governed by a Board of Directors – Board structure to come (including a required number of independent directors); funded by member fees.
- To consider other potential member types in the future; website to come.
SOUND PRACTICES – ANNUAL CERTIFICATION BY MEMBERS
- Members shall certify to VCA, annually, that they are in compliance with “Sound Practices,” including:
- Responsible Financial Management – Establish a transparent program of financial responsibility and controls for members to ensure confidence in the fiscal soundness of members and to encourage customer confidence.
- Transparency; Conflicts of Interest – Provide appropriate transparency regarding bids, offers, executions, and other relevant data to the public; adopt policies to avoid conflicts of interest.
- Rules-Based Markets – Maintain and enforce a system of marketplace conduct rules; and implement policies and procedures to respond to and address customer concerns and complaints.
- Cyber and Information Security; Recordkeeping – Implement and maintain current best practices with respect to cybersecurity, information security, and recordkeeping.
- Surveillance – Monitor and surveil markets to detect and deter (and where appropriate, discipline) manipulative and fraudulent acts and practices.
- Information Sharing – Agree to enter into information sharing agreements for the purposes of marketplace surveillance with other members and with regulated exchanges and trading platforms that list products based on virtual commodities.
- Cooperation With Regulators – Among other things, agree to report instances of manipulative and fraudulent conduct to the CFTC and other regulators as appropriate.
- Legal Analysis – Agree to perform proper diligence and legal analysis when determining the legal status of a virtual commodity for listing and trading in order to avoid listing and trading security tokens, unless the member has obtained necessary licenses for security tokens.
PRIMARY FUNCTION OF THE VCA AND ITS BOARD
- Facilitate the periodic examination of members and issue a report indicating whether the member is adhering to its primary obligations and complying with Sound Practices;
- Where members fail to comply with Sound Practices, impose agreed upon sanctions; and
- Interact with and educate regulators (such as the CFTC or the SEC) and legislators.
The Winklevoss twins concluded their declaration stating:
“The SRO approach has historically worked to protect and police various markets. For example, the National Futures Association is an SRO for the U.S. derivatives industry and is a model for how the VCA can work together with the CFTC to provide additional oversight to virtual commodity cash markets. The promise of virtual commodities and their impact on the future will be profound — but individuals and institutions need to feel safe and secure when transacting.”
“We believe a thoughtful SRO framework that provides a virtual commodity regulatory program for the virtual commodity industry is the next logical step in the maturation of this market. We look forward to engaging with industry leaders, participants, regulators, and legislators on this proposal.”