Regulatory challenges in crypto market making

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Crypto market makers are financial entities or high-frequency traders that “make” the market for crypto assets by continuously placing buy and sell orders in an order book.

An example of a market maker platform may be WhiteBIT - one of the largest crypto trading exchanges in Europe that offers a market-making program for those willing to take part.


Who can be a market maker? If we take WhiteBIT - a regulated, centralised exchange - we should take note that to become a market maker on its trading platform, you need to prove your company’s compliance with existing regulations and standards.

And it works the same way for other regulated exchanges. In this article, we will discuss general crypto market maker regulations and key requirements.

Challenges for Market Makers

Here are some of the key regulatory challenges in crypto market making:

● Uncertain regulatory frameworks. Crypto regulations may vary across jurisdictions, and in many cases, they are still under development. Market makers must stay abreast of global market maker regulations and modify their strategies to comply with varying legal requirements.

● Licensing and registration. Some jurisdictions require market makers to obtain specific licences or registrations to operate legally. Due diligence is essential to identify and comply with licensing requirements in relevant jurisdictions.

● AML (anti-money laundering) and KYC (know your customer). AML and KYC regulations are stringent in many jurisdictions, and market makers must implement robust customer identification and due diligence processes.

● Cross-border compliance. Operating in multiple jurisdictions may require market makers to navigate complex cross-border compliance issues. Establishing a clear understanding of regulatory requirements in each jurisdiction of operation is a must.

● Market manipulation and insider trading. Preventing market manipulation and insider trading is a regulatory priority, and market makers must implement measures to detect and deter such activities. That includes advanced monitoring systems, regular audits, and collaborating with regulatory authorities.

● Smart contract and blockchain compliance. With the rise of decentralised finance, the compliance of smart contracts and blockchain-based activities is a growing concern. Collaborating with regulators to foster an understanding of blockchain technology contributes to smoother regulatory compliance.

Key Requirements and the Future of Compliance

Key requirements for compliance for market makers include licensing and registration, AML, KYC compliance, smart contract and blockchain compliance, audits, reporting, and security measures.

The future of market maker compliance is going to face more rules and standards from regulators worldwide. They will need to use advanced technology and work closely with regulators to follow these rules.

The focus will also be on following the rules in decentralised finance and making sure everything is secure. As the crypto industry develops, market makers will play a big role in ensuring safe trading by following the changing regulatory framework.

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