Jane Street, Tower Research, and Radix: The Top Players in Binance’s Inner Circle

Key Points:

• Three US trading firms were cited in the CFTC’s lawsuit against Binance for allegedly violating US derivatives regulations.
• The CFTC accused Binance of facilitating violations of US law by helping US traders evade compliance measures meant to block their access.
• Institutional trading firms received a “VIP” treatment from Binance in return for providing liquidity on the exchange and trading fee revenue.

In a lawsuit filed by the Commodity Futures Trading Commission (CFTC) against Binance, one of the largest cryptocurrency exchanges in the world, Jane Street Group, Tower Research Capital, and Radix Trading were identified as “VIP” clients.

The CFTC accused BNB of violating US derivatives regulations, including failing to keep Americans off its exchange and not registering with the regulator. Even though the three US quant firms were not accused of any wrongdoing, the CFTC’s mention of US-headquartered companies using offshore entities to trade on Binance sent a chill through the quant industry. Trading by Wall Street firms, for themselves or on behalf of clients, on overseas venues that aren’t registered with US regulators like the CFTC can be a compliance gray area.

The lawsuit alleged that Binance “actively facilitated violations of U.S. law” by helping unspecified traders based in the US evade know-your-customer rules and compliance measures meant to block their access. Binance offered a “VIP” treatment, which included lower transaction fees and faster access for trades, to institutional trading firms active in trading Bitcoin perpetual and other crypto derivatives on its platform. The CFTC complaint mentioned that the crypto platform also offered to provide its top traders “prompt notification of any law enforcement inquiry concerning their account.”

Radix Trading Firm A, Jane Street Trading Firm B, and Tower Research Trading Firm C were cited anonymously in the CFTC complaint as examples of how US clients accessed the platform. According to the CFTC, these institutional trading firms received the “white glove” treatment from Binance in return for providing liquidity on the exchange and trading fee revenue.

Binance has long said that it isn’t required to register with the CFTC because it prevents US users from accessing its global platform, where more complex crypto derivatives products can be traded. However, the CFTC alleged that Binance’s strictures were weak, and in some instances, the exchange helped firms get around them. For example, Binance instructed Trading Firm A, which was really Radix, to access the exchange’s website through a virtual private network. Meanwhile, according to the complaint, Trading Firm B entered into a “services agreement” with an entity registered in Jersey, a British dependency. The people said that firm, described as one of Binance’s largest customers, was Jane Street.

The US’s main derivatives regulator, the CFTC, which claims significant jurisdiction over crypto assets, didn’t comment on the matter. Jane Street declined to comment, while Radix and Tower didn’t respond to multiple requests for comment. Radix co-founder Benjamin Blander told the Wall Street Journal that it believed it did nothing wrong in trading through offshore entities on Binance and that it has been cooperating with the CFTC.

The lawsuit’s mention of US-headquartered companies using offshore entities to trade on Binance caused concern in the quant industry, as many have dabbled in crypto. Still, equities and other more traditional assets remain their bread and butter. A serious regulatory misstep could have repercussions on their broader ability to conduct business.

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Annie

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