September 24, 2023

Binance, one of the largest cryptocurrency exchange companies in the world, have been caught in the net of the Securities Exchange Commission. This probe is coming after the regulatory agency uncovered documents linking the firm’s American affiliate, Binance US, with two other companies.

The watchdog is now asking the US branch for details on its relationship with the other parties. There are documents stating that the crypto firm controls both entities.

SEC Investigates Binance US 

In the past months, the Securities Exchange Commission has been at the forefront of cryptocurrency regulation in the US. 

As stated in a Tuesday report released by the Wall Street Journal, SEC has embarked on an investigation on the relationship between Binance US and two other market makers.

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Merit Peak Limited and Sigma Chain AG are the two market makers in question. They have traded digital currencies on Binance US since the firm was established in 2019.

Who Are Market Makers?

Market makers are companies that help to sustain liquidity in a trading market. Their job is to buy and sell assets. These transactions allow them to make profits from the trading market. In an unregulated crypto market, the market makers have the upper hand over the regular traders. This unfair advantage is because they can execute trades faster and more efficiently. 

The Nature Of Their Relationship 

Corporate documents published in 2019 showed that the CEO of Binance, Zhao, is in control of both markets. The Securities Exchange Commission is only trying to investigate if there is a relation between the parties. As stated in the law, trading platforms ought to disclose any ties with market makers. If the crypto giant is found guilty, it could lead to severe penalties.

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The issue has raised concerns because customers are not aware of the ties, nor did the crypto firm mention it on its website. In 2020, the US arm of Binance was first subpoenaed by the regulator. The firm wanted to know if this branch operated independently of the main company.

Last year, Coinbase, a rival to the crypto firm, denied having affiliation with any market maker, as stated by Wall Street Journal. 

The regulator can not properly investigate Binance US because of the opaque regulation of digital currencies. Before the SEC can go on with the investigation, it would have to prove that the digital assets provided by the company can be categorized as securities and therefore under its jurisdiction. 

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Moreover, the Securities Exchange Commission is yet to win its lawsuit on the definition of the term “securities.” 


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