IEX uses potential partner for regulated crypto exchange

Brad Katsuyama hopes the second time’s the charm.

Katsuyama, the chairman of the exchange IEX, and his staff are now in talks with the publicly traded cryptocurrency exchange Coinbase to create a federally authorized marketplace for digital assets, people with direct knowledge of the matter tell Fox Business.

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As reported by Fox Business, Katsuyama, a veteran trader who was the protagonist of the book “Flash Boys”, author Michael Lewis’ account of high-frequency trading on Wall Street, previously met with officials from the Securities and Exchange Commission for a crypto. exchange that would be the first to receive an explicit blessing from Wall Street’s top cop, Gary Gensler.

WASHINGTON, DC – SEPTEMBER 14: US Securities and Exchange Commission Chairman Gary Gensler testifies before a Senate Banking, Housing and Urban Affairs Committee oversight hearing on the SEC on September 14, 2021 in Washington, DC. (Photo by (Evelyn Hockstein-Pool/Getty Images/Getty Images)

His partner in the first venture was Sam Bankman-Fried, the since-indicted founder of now-defunct crypto exchange FTX, Fox Business reported. According to Gensler’s public calendar, both Bankman-Fried and Katsuyama held proposal meetings with commission officials and the chairman himself.

Those meetings took place around the time FTX filed for bankruptcy in November in what regulators are calling one of the biggest frauds in crypto history.
Government officials accuse Bankman-Fried and his associates of stealing FTX client assets to fund their lavish lifestyles and trading losses from an affiliated hedge fund, Alameda Research. Bankman-Fried pleaded not guilty and remains under house arrest until his trial in October and faces up to 115 years in prison. Other FTX executives have entered into plea agreements with prosecutors from the US attorney’s office in Manhattan and are expected to testify in court as government witnesses.

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Katsuyama is said to have continued his negotiations with the SEC for an approved exchange even after the FTX debacle; his potential partnership with Coinbase has not been previously reported and he declined to comment on the matter.

An IEX spokeswoman told Fox Business: “We continue to consider ways we can help provide a regulatory pathway for digital asset securities, including conversations with regulators and other market participants, but have not finalized any specific proposal that includes third parties.”

Representations of cryptocurrencies appear in front of the displayed FTX logo and a declining stock graph in this illustration taken on November 10, 2022. (Reuters/Dado Ruvic/Illustration/File Photo/Reuters Photos)

A spokesperson for Coinbase did not return calls and emails for comment. After the market closed on Tuesday, the exchange reported higher-than-expected earnings in the fourth quarter of $605 million. Still, the company lost $557 million for the fourth quarter ended Dec. 31, compared with earnings of $840 million in the same quarter in 2021.

Like many crypto businesses, Coinbase suffered through the so-called “crypto winter” of 2022, losing $2.625 billion. Higher interest rates plus increased regulatory pressure caused significant declines in digital assets, reducing the value of the global crypto industry by nearly $2 trillion. The FTX bankruptcy added to the pain in the $1 trillion crypto market.

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Various market participants have been looking at a way to get approval from the SEC for a crypto marketplace where digital coins can be traded without fear of a regulatory backlash. Gensler, a former Goldman Sachs banker and MIT professor who taught a course on blockchain technology, has publicly stated that the vast majority of crypto tokens are traded illegally as unregistered securities. He has singled out Bitcoin as possibly the only digital asset likely to be traded as a commodity.

POLAND – 2021/09/23: This photo illustration shows a Coinbase logo on a smartphone. (Photo illustration by Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images) (Mateusz Slodkowski/SOPA Images/LightRocket/Getty Images)

In recent weeks, Gensler has filed enforcement actions against various crypto companies, including exchanges Kraken and Gemini for alleged violations of the SEC rule. He has also brought cases against entities that sell allegedly unregistered coins, and the SEC continues to process a case brought by Gensler’s predecessor, Jay Clayton, against cross-border payments company Ripple.

The SEC alleges that Ripple executives violated securities laws by failing to register the XRP token before various sales were used to finance the development of the platform.

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Ripple has mounted a powerful defense; the high-profile case is expected to conclude this year, and the outcome will likely dictate how much authority the SEC has over crypto regulation.