BAM Trading and Binance in the Heart of Crypto Trading Amid Regulatory Challenges

FACTS

V. UNDER ZHAO’S CONTROL, BAM TRADING AND BINANCE PROVIDE EXCHANGE AND CLEARING AGENCY FUNCTIONS TO U.S. CUSTOMERS, AND BAM TRADING ALSO PROVIDES BROKERAGE SERVICES TO U.S. CUSTOMERS

B. BAM Trading and Binance Together, Under Zhao’s Control, Maintain and Provide a Marketplace and Facilities for Trading Crypto Asset Securities.

218. Since the Binance.US Platform launched in September 2019, BAM Trading and Binance, both under Zhao’s control, have operated the platform’s exchange functions.

219. BAM Trading has functioned as the legal owner and public face of the Binance.US Platform. The Binance.US Platform has throughout its existence operated using Binance’s matching engine software, digital wallet, clearing and settlement technology, trademarks, and related technology support and hosting environment, all of which were created, deployed, and maintained by Binance engineers and other employees at Zhao’s direction and input. Under the Software License Agreement, Binance Holdings is responsible for providing and maintaining software modules for a “[d]igital currency exchange platform,” “[m]atching engine,” “[d]igital currency wallet services,” and frontend user applications such as the website and mobile applications, among other modules—all for the purpose of “operat[ing] a digital currency trading platform for the U.S. market,” namely, the Binance.US Platform.

220. At the time of the platform’s launch, Binance personnel were primarily responsible for managing the trading functions, while BAM Trading performed certain backend system operations for Binance.US Platform customer services. As reflected in the Master Services Agreement, Binance is responsible for maintaining, supporting, developing, and implementing additional features and upgrades to the Binance.US Platform, including the platform’s crypto asset trading services and features.

221. Binance also created the Binance.US website, a mobile phone application, and an API, all so the Binance.US Platform’s interfaces resemble the Binance.com Platform’s interfaces, including the displayed order book that displays available trading pairs and, for each pair, the current top bids and offers (prioritized by price and time), various categories of pricing information, and 24-hour trading volume.

222. Over time, Binance has transitioned certain of its responsibilities and functions to BAM Trading personnel (sometimes by converting Binance employees into BAM Trading employees), thereby increasing BAM Trading’s responsibilities, and BAM Trading and Binance personnel have continued to work together to provide and maintain the Binance.US Platform’s exchange functions.

i. Order Matching and Trading Rules of the Binance.US Platform

223. To effect spot trading on the Binance.US Platform, BAM Trading licenses Binance’s proprietary software, including its matching engine technology, which Binance adapted for the Binance.US Platform. The Binance.US Platform’s website, API, and mobile apps allow customers to enter orders, view account information, and otherwise access the platform’s trading services and other functions.

224. Customers can enter different order types on the Binance.US Platform. Its matching engine, like the one for the Binance.com Platform, automatically matches and fills orders, executing trades using programmed, non-discretionary price-time priority rules. According to these rules, unless otherwise specified by a customer, an order that is posted to the order book at a different price than all other existing orders on the book rests on the order book until the customer cancels it, or future orders match with it.

ii. The Binance.US Platform’s OTC Desk, OCBS, and Convert Services

225. In addition to spot trading, BAM Trading offers customers the ability to purchase and sell crypto assets, including crypto asset securities, through additional Binance.US Platform services described as the “OTC Desk,” “OCBS,” and “Convert” trading services.

226. Since in or around May 2020, the Binance.US Platform has maintained an OTC Desk that allows customers, primarily institutional traders, to execute generally large volume trades for crypto asset and fiat pairs. In 2021, the OTC Desk had over $654 million in trades. Through the Binance.US Platform’s OTC Desk, BAM Trading serves as the interface between a customer and a counterparty firm and provides requested quotes to the customer, which the customer can accept through the Binance.US Platform. If the customer accepts the trade, the customer’s account balance is updated with either the withdrawal or deposit. Except for orders over a certain size, the process for executing trades through the OTC Desk is automated.

227. From May 2020 to February 2022, Alameda Research, the trading firm associated with FTX founder Sam Bankman-Fried, was often the OTC Desk’s only counterparty vis-à-vis BAM Trading customers. From at least February 2022, Sigma Chain served as a counterparty.

228. In addition, BAM Trading offers “OCBS” and “Convert” services on the Binance.US Platform. The OCBS service permits customers to exchange U.S. dollars for crypto assets (effecting over $6.1 billion in trades in 2021), and the Convert service permits the exchange of one crypto asset for another of over 130 crypto assets. The Binance.US Platform serves as the interface through which customers make trading requests and are provided quotes, and through which the purchases or sales are executed. BAM Trading’s marketing touts these services as a means “to avoid slippage, simplify [the] trading experience, or make one less trade.”

229. Sigma Chain has been the sole counterparty for the OCBS and Convert services since they were first offered in early 2020 and April 2021, respectively.