Eventus Systems Inc., which helps brokers and traders prevent market manipulation, got a $30 million investment from a group led by Centana Growth Partners and including venture-capital affiliates of several Chicago-based trading giants.
The company’s surveillance software lets firms detect if their employees or customers are engaged in illicit trading and also tracks whether they’re complying with other regulations. It can be used across asset classes like stocks, bonds, options and futures, and the latest funding round -- which DRW, Jump Capital, CMT Digital and LiveOak Venture Partners participated in -- will partly fuel Eventus’s expansion in cryptocurrency trading.
As Eventus eyes digital assets, Chief Executive Officer Travis Schwab is struck by the Securities and Exchange Commission’s reluctance to approve a Bitcoin exchange-traded fund, in part out of concern that cryptocurrency trading is full of fraud.
A Bitcoin ETF Is Viewed as a Bad Deal for Most Retail Investors
“In every single asset class, our clients see manipulation,” Schwab said in an interview. That means it’s possibly unfair to flag rigging in Bitcoin as something unusual, he added.
“In crypto, it’s pretty simplistic wash trading,” Schwab said, using industry jargon for nefariously trading with yourself to artificially inflate demand for something. Over in stocks, where regulators have been watching closely for years, “the schemes are hyper-sophisticated,” he added. “It takes interesting ways to sniff it out.”
A key leg of Eventus’s sales pitch is that the 2010 Dodd-Frank Act opened the dollar to criminal liability for market manipulation. Paying a fine was no longer the worst consequence, amping up demand for trade-surveillance software.
“You could go to jail,” Schwab said. “That ratcheted up the requirements for these financial firms.”
Despite the attention paid to crypto, Eventus sees expansion opportunities in bonds, too. The company has signed up clients in crypto and fixed income in roughly equal numbers in the past six months, Schwab said. Foreign exchange, where regulation is notoriously lax, is another growth area.
As conventional assets such as stocks get turned into digital tokens, regulators will have a tough time keeping up, Schwab said. It’s already difficult to do cross-market surveillance, or tracking manipulation that has multiple legs in different asset classes, he said.
“It’s going to get dramatically worse as you have tokenization across those asset classes,” he said.
