SeedCX Exchange Is Barring Employees from Crypto Trading
Having traded cryptocurrency with his own money since 2014, software engineer Alex Wachli made a difficult choice when he joined the institutional crypto startup Seed CX.
He had to give up trading.
Seed CX forbids cryptocurrency trading by its roughly 40 employees. So Walchli effectively locked up his crypto holdings by handing the compliance team a list of all his wallet addresses, so they could monitor them and confirm his holdings stayed put.
The engineer says he understands how personal investments could create a conflict of interest with regards to the customers he serves and the way his team evaluates support for various assets.
“I think everybody here is not here to try and pick and choose winners, and to let the market to decide,” Walchli told CoinDesk. “If we didn’t have these policies we might be biased and we might not be focusing on the right goals.”
Seed CX’s policy, quietly put into place last year, appears to be one of the industry’s strictest. Few exchange startups have employee trading policies comparable to those found in traditional capital markets, in part because crypto is still considered by some to be a Wild West industry without clear regulatory requirements.
“We don’t necessarily know what ‘material, non-public information’ [MNPI] means in a crypto context,” Justin Steffen, a litigation partner at Jenner & Block LLP, told CoinDesk, referring to the legal term for information that would give insiders an edge over the investing public. “That will be worked out by courts.”
In the securities markets, for example, an executive who trades stock knowing that the company is about to announce a merger or recall a defective product might be a straightforward case of illegal insider trading. But in crypto, where the assets are created with open-source software and network activity is visible to all on a blockchain, different types of news move the markets.
And sometimes the people working at crypto exchanges are privy to such information – including trading trends, technical issues related to liquidity, and decisions to list certain assets – before anyone else.
In traditional finance, “it’s rare for exchanges to have this much power to change the price of a token or asset that they list,” said Edward Woodford, co-founder of Seed CX, which has raised $25 million of venture capital and is courting instititonal investors as clients.
As such, Woodford said his company’s no-trading policy aims to foster trust among institutions that are used to established corporate norms beyond MNPI contracts, which state employees may not trade based on internal information that could move the broader market.
Speaking of rumors that some crypto exchanges trade against their customers or allow front-running, where employees make personal trades based on information general customers don’t have yet, Woodford told CoinDesk:
“We wanted to avoid any risk that these [frontrunning] allegations could be levied against us.”
Lay of the land.
To put Seed CX’s employee trading ban in perspective, CoinDesk reached out to several other prominent crypto trading platforms about their policies.
A spokesperson for Binance, currently the world’s second-largest exchange by trading volume according to CoinMarketCap, said the Singapore-based company has “a strict policy in place banning insider trading, similar to that of investment banks,” but would not share further details.
In Silicon Valley, industry unicorn Coinbase’s chief legal officer Brian Brooks told CoinDesk his company’s current policy requires a small group of employees with decision-making power to self-report their holdings.
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