Malaysian digital asset trading platform Tokenize Xchange announced that it will be deploying cryptocurrency market surveillance tools developed by the New York-based Solidus Labs. 

The firm says this will help the exchange achieve Wall Street-grade market surveillance standards.

The solutions provided by Solidus Labs will use machine learning to read thousands of factors including trading behaviors and market conditions to detect activities that must be reviewed. This will purportedly keep a check on illegal trading activities such as wash-trading, spoofing, pump-and-dump, etc.

The integration comes two months after Tokenize Xchange became one of the three Malaysian digital asset exchanges to receive full approval from its national regulator, the Securities Commission of Malaysia. 

Due to the rise in illicit activities in the digital asset industry and regulators consistently pressuring exchanges to improve their security systems, Asaf Meir, CEO of Solidus Labs, said that external surveillance tools are going to be a critical system for exchanges looking to grow.

Regulators may make surveillance systems mandatory

Better regulations and surveillance tools to moderate crypto exchanges and trading activities could potentially be a way forward for the industry.

Many jurisdictions like Hong Kong and Malaysia have already clarified that exchanges need an external market surveillance provider to achieve a license, said Meir. 

“Regulators worldwide are working on similar frameworks, and we anticipate that soon surveillance will be required to operate almost anywhere, definitely in a regulated manner.”

Meir also noted that “exchanges that take serious steps towards market integrity are the ones that get institutional clients.”

Challenges in implementation

Meir explained that there are always challenges with integrating market surveillance systems into exchanges, even more so when speaking of cryptocurrency exchanges.

“Crypto and digital assets introduce fundamentally different market structures, data structures, regulatory reality and new forms of crypto-specific market manipulation threats,” he said.

Consequently, integration becomes not only a very complex process but also an expensive one. This is why many exchanges don’t find the idea of integrating market surveillance system very appealing, Meir concluded.