After launching a regulation program for bitcoin brokers, the Financial Commission has announced the creation of new supervisory regulation for cryptocurrency liquidity providers (LP). A Hong Kong entity, the Financial Commission provides regulatory oversight to the financial industry through arbitration hearing between brokers and liquidity providers and their customers.
The new regulation for cryptocurrency liquidity providers comes as several bitcoin ECNs have been launched over the last few months including Exgate and Ibinex. The ECNs aggregate bitcoin and other cryptocurrency pricing from numerous exchange operators. Although several firms had planned to launch bitcoin ECNs as early as 2013, they have proved harder to create then initially believed due to price differentials between bitcoin exchanges as well as delays involved with transferring funds and bitcoins between exchanges. However, as the industry has matured, and with the arrival of professional market makers to cryptocurrencies, the pricing differences between bitcoin exchanges has decreased.
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Providing oversight, the Financial Commission’s cryptocurrency liquidity provider regulation will included the monitoring of financial requirements, reporting and record keeping. Per their rules for regulation, approved members will have to follow minimum net capital level requirements, such as maintaining a net capital amount of 10% of all liabilities owed to customers exceeding $500,000.
According to the Financial Commission, the new regulatory membership for cryptocurrencies follows similar successes they have had from acting as a self-regulated oversight committee to the forex, CFD and binary options industries.