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Bitbuy, Canada’s First Regulated Crypto Marketplace, Implements Eventus Validus for Surveillance

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Last week, Bitbuy Technologies, Canada’s first cryptocurrency trading platform to be regulated as a marketplace, announced that it has implemented the Eventus Validus platform to meet all of its trade surveillance needs. Bitbuy’s compliance department is now using Validus to help ensure its market operates with integrity, by monitoring client trading behaviour and identifying any potentially problematic activity that requires further investigation.

Following the announcement, TradingTech Insight spoke to Eventus CEO Travis Schwab and Torstein Braaten, Head of Regulatory Affairs and Chief Compliance Officer at Bitbuy, to learn more about the project.

“There are formal guidelines with the Canadian Securities Administrators that specify what you need to provide as an alternative trading system (ATS), in terms of systems diagrams, surveillance, business continuity, and so on,” says Braaten. “There is no central organisation that is surveilling crypto or digital assets in Canada, so when we applied to be a regulated marketplace, in order to preserve market integrity, we needed to ensure that participants are sending orders fairly and appropriately, and that we have a window into what they’re doing over time as well as throughout each day.”

The biggest challenge with an asset class like cryptocurrencies is having a window into what clients are doing, says Braaten.

“There are certain items that you need to surveil for, so we use Validus to perform an analysis on all our trading activity, and provide alerts,” he says. “Those alerts provide the compliance officers an opportunity to investigate the ones identified as higher risk. Because alerts are risk ranked, over time you can see patterns around whether a particular client is potentially sending in orders of concern. Other examples of surveillance would be for layering, spoofing, front running and other traditional market manipulation type activities. There could be millions of orders coming in, so you need a robust and scalable system to process and perform analysis on them. Validus provides a risk ranking that gives you the option as a compliance officer to raise or lower your attention to a certain risk score, and then perform a more in-depth investigation on higher risk items, and maybe a less in-depth investigation on lower risk ones.”

Despite the fact that the majority of crypto & digital asset exchanges are not currently classed as regulated marketplaces, there is a growing requirement for proven surveillance platforms in the crypto space, says Schwab.

“There are jurisdictions that are employing stricter regulatory controls, like Canada, Hong Kong, and Singapore, which is driving marketplaces like Bitbuy to seek out technologies like Validus,” he says. “But there is also a bifurcation happening between the retail side and the institutional side. Any marketplace that wants to attract institutional customers, such as traditional buy sides, asset managers and so on, needs these types of technologies. There are hundreds of crypto exchanges around the world, but only some of these cater to the more institutional base or comply with the various jurisdictional rules. That number is growing however, so the need for these types of technologies is also growing. Institutional participants, when they bring cryptos and digital assets into the mix, want to adopt measures that have worked in the traditional finance space for decades. As these technologies are adopted, the asset class will continue to grow more broadly.”

Eventus is now having discussions with a number of regulators around the world on how crypto and digital asset trading can be better surveilled.

“We are marketing our technology to regulators as much as we are to companies like Bitbuy,” he says. “They would use our technology to surveil exchanges in the same way that Bitbuy use it to surveil their clients. At Eventus, we have a lot of volume going through our systems globally, across a lot of different exchanges, so we can provide unique insights.”

Use of platforms such as Validus can also help with cross-market surveillance, adds Braaten. “Digital assets are not built around a common protocol, like FIX, so the issue of having a standardised view is a challenge that can be resolved by working with firms like Eventus,” he says. “We can learn from each other about how crypto assets are being traded and how they’re being reported. Maybe we’ll all evolve to a common standard by relying on firms like Eventus to find a way to work with everyone, and present a common standard to the regulator. That’s definitely needed, because there’s no way that regulators can do just market-by-market surveillance, they need to do intermarket surveillance, as firms are trading across markets.”

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