The US SEC is investigating a connection between the US division of the Binance bitcoin exchange and two trading firms associated with the founder of the parent company, Changpeng Zhao.
The US Securities and Exchange Commission (SEC) has opened an investigation into the US division of the Binance cryptocurrency exchange in order to determine the nature of its relationship with two trading firms: Merit Peak Ltd and Sigma Chain AG. The Wall Street Journal is reporting, citing sources.
The companies provide market-making services to Binance.US, that is, they conduct operations on the exchange to provide liquidity and in the process earn on small price differences. Binance CEO Changpeng Zhao was linked to both firms, according to corporate documents from 2019, and sources say he controlled both of them as of the end of last year.
The SEC intends to determine whether Binance.US partners had priority in terms of access and speed when making transactions on the platform. The regulator is also interested in whether the exchange has notified its clients that it is associated with the above companies.
According to US laws, trading platforms are required to disclose information about market makers associated with them, who can enjoy more favorable order execution conditions compared to ordinary users.
“Marketmaking is a standard activity in both the cryptocurrency and traditional markets. For example, such services are provided by Citadel Securities or Alamada Research, owned by the founder of the FTX exchange, Sam Bankman-Fried. They provide liquidity and directly support the efficiency of the market for the benefit of end users,” said a Binance spokesperson.
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Binance.US was founded in 2019 after the main exchange was banned from serving US customers. The exchange was already on the radar of the SEC in 2020, when the regulator wanted to find out if it really operated independently of Binance.
Recall that in January, the SEC promised increased oversight of crypto exchanges.
In the same month, Reuters, following its own investigation, concluded that Binance repeatedly withheld information from regulators, neglected KYC procedures, and acted contrary to the recommendations of its own compliance department.
In March 2021, Bloomberg reported that the CFTC was studying Binance 's activities for possible admission for US residents to trade crypto derivatives without a proper license.
Rival exchange Coinbase, in a conversation with The Wall Street Journal, rejected suggestions that it has affiliated market makers.
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