CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Ben Magahy, Paul Walters and Gemma Walters, Travers Thorp Alberga
6. Marketplaces, Exchanges and Trading Platforms 6.1 Permissible Trading Platforms Section 4(a)(i) of the Stock Exchange Company Law provides that the Cayman Islands Stock Exchange has the sole and exclusive right to operate one or more securities markets in the Cayman Islands. In contrast, a marketplace, exchange and trad - ing platform for virtual assets is likely to be “vir- tual asset trading platform” and regulated under the VASP Act. 6.2 Regulation of Different Asset Classes Marketplaces, exchanges and trading platforms for securities versus virtual assets will be regu - lated in a different manner. A securities trading platform is likely to be regu - lated under SIBA – although careful considera - tion would be needed as Section 4(a)(i) of the Stock Exchange Company Law provides that the Cayman Islands Stock Exchange has the sole and exclusive right to operate one or more securities markets in the Cayman Islands. In contrast, a marketplace, exchange and trad - ing platform for virtual assets is likely to be “vir- tual asset trading platform” and regulated under the VASP Act. 6.3 Impact of the Emergence of Cryptocurrency Exchanges The VASP Act came into effect in October 2020, and established a framework for regulating busi - nesses providing virtual asset services (VASPs) in the Cayman Islands. This includes cryptocur - rency exchanges which are regulated as Vir - tual Asset Trading Platforms under the VASP
Act. VASPs need to register or obtain a licence depending on their business activities. VASPs are also subject to AML and CTF regula - tions, which are designed to ensure transpar - ency and combat financial crime. In addition, depending on the structure and activities of the exchange, other laws such as SIBA or the Mutu - al Funds Act might also apply. The question of whether a decentralised (ie, DeFi) exchange will be regulated under the VASP Act depends on whether it falls into the definition of “Virtual Asset Trading Platform” , which means a centralised or decentralised digital platform: • which facilitates the exchange of virtual assets for fiat currency or other virtual assets on behalf of third parties for a fee, commis - sion, spread or other benefit; and • which: (a) holds custody of or controls virtual assets on behalf of its clients to facilitate an exchange; or (b) purchases virtual assets from a seller when transactions or bids and offers are matched in order to sell them to a buyer, and includes its owner or operator, but does not include a platform that only provides a forum where sellers and buy - ers may post bids and offers, and a forum where the parties trade in a separate platform or in a peer-to-peer manner. Having regard to the above, and given the fact that most decentralised exchanges do not hold custody of or control of virtual assets on behalf of clients to facilitate an exchange, it is generally expected that most decentralised exchanges will not be regulated under the VASP Act.
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