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The Growing Role of FIX in Real-Time Crypto Trade Surveillance

Solidus Labs
December 7, 2023

In the fast-paced world of cryptocurrency – where markets operate 24/7, liquidity fragmentation is the norm, and assets experience unprecedented volatility – the need for real-time trade surveillance has never been more critical. In this blog post, we delve into the significance of real-time trade surveillance in crypto markets and why it is a cornerstone for compliance teams and regulators alike. We also discuss the rise of the Financial Information eXchange (FIX) protocol in crypto, both as a regulatory requirement in some jurisdictions and as a reflection of growing institutional adoption of crypto.

The Value of Real-Time Surveillance in the Crypto World

Detecting market manipulation in seconds – rather than days – requires rapid and accurate transmission of trade data. Such real-time detection could have helped analysts prevent the Mango Markets exploit, for example, along with the myriad price manipulation attacks that take place on centralized exchanges today. In the cryptocurrency industry, exchanges’ trade surveillance systems need to be just as dedicated to mitigating counterparty risk as to addressing compliance requirements, and real-time trade surveillance is an essential piece of that puzzle.

The Growing Institutional Influence in Cryptocurrency

Historically, crypto exchanges functioned largely as retail-driven platforms, utilizing bespoke REST APIs and WebSockets for connectivity. However, as the market matures and institutional players such as banks and broker-dealers enter the fray, there's a greater push for crypto exchanges to communicate using the same protocols as traditional finance. This shift is particularly evident in markets like the UAE, where regulatory frameworks are evolving to encourage licensed institutional involvement in digital assets and require adoption of the FIX protocol.

The Case for FIX in Crypto

FIX, a protocol that has evolved over nearly 30 years in traditional finance, is designed to support real-time trade information exchange. It serves a similar role to SWIFT in payments, handling pre-trade, post-trade, and regulatory reporting data transmission. The adoption of FIX in crypto is driven by several factors:

  • Standardization: The lack of standard definitions and practices in crypto has led to expensive and challenging cross-exchange trading. FIX offers a unified framework that could streamline these processes and make integration easier for institutions already familiar with FIX in equity markets.
  • Information Security: Unlike REST APIs or WebSockets, which have limitations in handling data in a secure way, FIX offers a more robust and secure method for real-time data communications.
  • Regulatory Requirements: In some regions, like Abu Dhabi Global Market and Thailand, crypto asset service providers are required to support FIX for interoperability and regulatory reporting purposes.

Embracing Change for Crypto Market Integrity

Transparency is a cornerstone of trust in financial markets. Real-time trade surveillance contributes to market transparency by providing a clear view of trading activities. This transparency not only builds trust among market participants but also fosters a healthier and more sustainable trading environment.Moreover, with institutions entering the fray, data transmission standardization and security is becoming a must.

The integration of the FIX protocol in the cryptocurrency sector represents yet another important step towards making this transparency, standardization and security possible, and aligning crypto more closely with institutional standards. Solidus Labs supports the FIX protocol for real-time crypto trade surveillance and market inspection, be it by crypto exchanges, broker-dealers, or regulators.

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