One of the drivers of the success of Deribit is the trust of the users (“clients”) of the platform. Preventing and controlling conflicts of interest is important to ensure that the interests, including the trust, of clients, as well as the reputation of Deribit are protected.
1. Purpose
The purpose of this Conflicts of Interest Policy (“Policy”) is to identify, prevent and, if this is not possible, manage (potential) Conflicts of Interest that may arise through the business activities of Deribit in order to prevent them from adversely affecting the interests of its Clients.
2. Scope
This Policy applies to Deribit including any affiliated companies (together: the “group”) and all employees, clients, shareholders and to all services and business activities that are provided and performed by Deribit.
This Policy covers any conflict of interest between the firm and its clients or between clients.
3. Definitions
Conflict of interest means an actual or potential conflict between the interests of Deribit and obligations that Deribit has to a client. This includes conflicts between the interests of:
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Employees of Deribit and obligations that Deribit has to a client; or,
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Two or more Clients of Deribit towards whom Deribit has obligations.
Client means a natural or legal person who has been admitted to trade cryptocurrency derivatives on the Deribit platform (according to the rules of the Deribit Rulebook);
Employee means a natural person who is employed by or is otherwise in a relationship of authority or command with Deribit, regardless of duration or nature, including agents and contractors and members of the Management Board;
Executive Committee means the group of senior managers who oversee and control the group.
4. Responsibilities
The Executive Committee has ultimate responsibility to ensure the proper management of Deribit and the wider group’s affairs and this policy.
With respect to this policy, the Executive Committee has overall responsibility for ensuring that all conflicts of interest are identified, prevented, managed and monitored. The Executive Committee has charged Compliance with the responsibility to determine the necessary courses of action to ensure adherence to relevant laws and regulations and to ensure that relevant processes are managed in an effective, compliant and professional manner.
5. Identifying conflicts of interest
The Executive Committee together with Compliance shall periodically examine which actual or potential conflicts of interest could arise through the business activities of Deribit. Conflicts of Interest that could lead to damage to the client's interests will be avoided as much as possible. If it is not possible to prevent such a conflict of interest from occurring, Deribit will take measures to or manage the conflict or prevent the conflict of interest from resulting in damage to the client's interests.
In identifying the types of conflicts of interest that may arise, Deribit shall consider whether Deribit, or an employee of Deribit:
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is likely to make a financial gain or avoid financial loss at the expense of a client;
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has an interest, different from the client's interest, in the result of a service or activity performed for a client;
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has a financial or other incentive to put the interest of one client or group of clients above the interest of another client or group of clients;
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carries on the same business as the client; or
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receives or will receive an inducement from a person other than the client for a service provided to the client in the form of monetary or non-monetary benefits.
Periodically, but at least annually, a risk assessment is being performed to identify all potential conflicts of interest. This risk assessment is prepared by the Executive Committee and facilitated by Compliance.
The risk assessment includes:
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an overview of all identified (potential) Conflicts of Interest;
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for each conflict, a description of how such (potential) conflict may be prevented or mitigated.
The risk assessment is recorded by the Compliance Officer in the Conflicts of Interest Register.
6. Specific circumstances under which conflicts of interest may occur
Conflicts of interest can arise under the following circumstances:
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the performance of outside business interests by employees;
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the acceptance and offering by employees of business gifts and entertainment invitations;
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receiving or providing commissions, fees etc. in connection with services (to be) provided to the client;
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presence of price-sensitive or other confidential information;
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where Deribit’s knowledge of client transactions can be exploited to Deribit’s advantage or to the advantage of another client;
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performance related remuneration; and
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entering into transactions where an Employee has a material interest.
7. Prevention of conflicts of interest
Where a potential conflict of interest is identified, Deribit will seek, as far as is appropriate or reasonably possible in the circumstances, to organise its business activities in a manner that prevents the crystallisation of the conflict of interest. This will include procedures and measures to ensure that employees engaged in different business activities involving a risk of conflicts of interest carry out these activities with a degree of independence which is appropriate to the size and activities of Deribit (and the wider group) and the materiality of the risk of damage to the interests of clients.
Where necessary or appropriate for Deribit to ensure the requisite degree of independence, procedures and measures to be followed shall include one or more of the following:
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information barriers to prevent or control the exchange of information between employees engaged in activities involving a risk of conflict of interest where the exchange of that information may harm the interests of one or more clients;
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separate supervision of relevant employees whose main functions involve carrying out activities or providing services for clients whose interests may conflict, or otherwise represent interests that may conflict;
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the elimination of a direct link between the remuneration of employees primarily involved in one activity and the remuneration of other employees primarily involved in the other activity if a conflict of interest may arise in relation to those activities;
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measures to prevent or restrain any person from exercising inappropriate influence over the way in which an employee carries out business activities or services for the client;
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reassignment of members of staff to prevent or control the simultaneous or sequential involvement of relevant members of staff in separate services or activities where such involvement may impair the proper management of conflicts of interest;
8. Management of conflicts of interest
Where a conflict of interest is unavoidable, the Executive Committee, after having taken the advice of Compliance, will take appropriate measures to mitigate and manage such conflict of interest in a manner that does not lead to favouritism of Deribit to the detriment of the client or to favouritism of one client to the detriment of another.
The Executive Committee, together with Compliance, records the control measures subsequently taken in the Conflicts of Interest Register.
The Executive Committee instructs its staff through internal policies and procedures to prevent or manage conflicts of interest. These policies and procedures include the following:
8.1 Outside business activities
Any external professional positions and outside business interests held by any Deribit employee are not permitted other than with pre-approval in writing from Compliance.
Rules in relation to external business activities and ancillary positions are captured in the Outside Business Interests Policy.
8.2 Gifts and entertainment
A conflict of interest may arise where an employee receives or offers a gift or form of entertainment that constitutes an inappropriate incentive for an employee, a representative, or a client to act in a certain way. Deribit does not permit the offering or acceptance of gifts or entertainment by an employee unless it is reasonable, appropriate and for a legitimate purpose.
Deribit has imposed rules regarding gifts, hospitality and entertainment, to avoid (potential) conflicts of interest. These rules are captured in the Gifts and Entertainment Policy.
8.3 Personal transactions
Employees are not permitted to carry out personal transactions on the platform:
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in the same way as a client order or potential order before it is executed;
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in circumstances where such personal transaction could adversely affect a client or the firm’s position or interest; or
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which could be qualified as front running client orders.
Other requirements relating to personal transactions causing a potential conflict of interest are captured in the Private Account Dealing Policy. All employees, regardless of their position, are required to sign to their adherence to the Private Account Dealing Policy.
8.4 Board conflicts of interest
If a member of the Board discloses that they have a material interest in a transaction, the remaining members of the Board shall consider whether it is appropriate for the concerned Board member to continue to participate in the Board meeting.
The remaining Board members are entitled to ask the concerned Board member to leave the Board meeting. The concerned Board member shall not use his personal influence in issues whether in or outside the meeting and shall not vote on the decision.
The Company Secretary shall record the conflict in the relevant Board minutes.
9. Disclosure of conflicts of interest to the client
Where Deribit is not reasonably confident that it is able to manage a particular conflict of interest to adequately protect the interest of a client, the fact, or source of, the conflict of interest will be clearly disclosed to the client before Deribit undertakes any related business. In particular, the disclosure will include:
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a specific description of the conflict of interest;
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an explanation of the risks to the client that arise;
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that the organisational and administrative arrangements established by Deribit to prevent or manage that conflict of interest are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented; and
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sufficient detail to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises.
Further, the fact of the disclosure is not considered to be a mitigant. All the controls detailed in this policy will continue to be applied in respect of that conflict of interest.
10. Representation of independence to clients
If Deribit represents itself as being independent with respect to a particular activity:
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Deribit shall not receive fees, commissions or any benefits, paid or provided from any other entity other than that end clients in relation to that specific activity; and
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Deribit shall not have any close links or other legal or economic relationships with third parties which are likely to impair its independence to favour a particular third party in relation to its provision of that specific activity.
11. Waiver of service
Where Deribit believes it is unable to manage the conflict of interest adequately and on a commercially reasonable basis, and the relevant client(s) does not agree to Deribit acting notwithstanding the conflict of interest, Deribit may refuse to provide services to the client.
12. Record keeping
Compliance shall keep records for a period of 8 years of the types of services and activities provided and performed, in respect of which a conflict of interest has arisen or may arise which entails a risk of damage to the interests of one or more clients in the Conflicts of Interest Register.
This information shall be updated on a regular basis. Compliance will produce written reports on such situations which will be sent to the Executive Committee on at least an annual basis.