Liquidity Docs

Regulatory Compliance

KYC/AML/IDV, pre-trade and post-trade compliance, regulatory reporting

Liquidity.io LLC is a registered broker-dealer operating under SEC regulations. All secondary trading of private securities requires compliance with the Securities Act of 1933 and applicable state "blue sky" laws.

The compliance stack is powered by liquidityio/compliance and integrated into the ATS via the CEX compliance service (liquidityio/cex/pkg/compliance).

KYC / Identity Verification

Identity verification is handled through liquidityio/compliance with multiple provider backends.

ProviderFunctionUse Case
JumioDocument verification, livenessPrimary IDV for individual accounts
OnfidoDocument + biometric verificationFallback IDV, international coverage
PlaidBank account verification, incomeFunding verification, Reg CF income checks

Individual KYC

  1. Government-issued photo ID (passport, driver's license, national ID)
  2. Selfie / liveness check (Jumio or Onfido)
  3. SSN verification (US residents)
  4. Address verification via utility bill or bank statement
  5. Verification completes in under 2 minutes for most submissions

Institutional KYB

  1. Certificate of incorporation
  2. Beneficial ownership documentation (all 25%+ owners)
  3. Authorized signers with individual KYC
  4. EIN / tax ID verification
  5. Review typically completes within 1-2 business days

AML / Sanctions Screening

Screening Lists

All customers and counterparties are screened against:

  • OFAC SDN -- U.S. Office of Foreign Assets Control Specially Designated Nationals
  • EU Consolidated Sanctions -- European Union consolidated list
  • UK HMT Sanctions -- Her Majesty's Treasury financial sanctions
  • PEP Lists -- Politically Exposed Persons (domestic and foreign)
  • Adverse Media -- Negative news screening via third-party feeds

Screening runs at onboarding and is re-run daily for all active accounts.

Transaction Monitoring

The AML monitoring service (liquidityio/compliance/pkg/aml) enforces real-time rules:

RuleThresholdAction
CTR thresholdSingle transaction > $10,000Flag for Currency Transaction Report
Structuring detectionTransactions $9,000-$9,999Flag for potential structuring
24h velocityVolume > $50,000 without enhanced KYCBlock until enhanced due diligence
Rapid transfers> 100 transactions in 24hBlock and flag for review

Travel Rule

For crypto transfers exceeding $3,000, the Travel Rule requires originator and beneficiary information to be transmitted between VASPs. Liquidity.io collects and transmits:

  • Originator: name, account number, address
  • Beneficiary: name, account number at receiving VASP
  • Transfer amount and asset type

Pre-Trade Compliance

Every order passes through the CEX compliance service before reaching the matching engine. Two pre-trade checks run in sequence:

1. General Pre-Trade Check (complianceSvc.PreTradeCheck())

CheckDescription
JurisdictionValidates the user's jurisdiction against 30+ supported countries
SanctionsReal-time OFAC/EU/UK/PEP screening of both parties
KYC statusConfirms identity verification is complete and not expired
Account standingConfirms account is not frozen, suspended, or under investigation
Position limitsValidates against per-account and per-asset position limits

2. Offering Pre-Trade Check (complianceSvc.OfferingPreTradeCheck())

CheckDescription
Accreditation (Reg D 506b)Self-certified accredited investor, accreditationStatus === 'completed'
Accreditation (Reg D 506c)Third-party verified accredited investor via Jumio/Onfido
Reg CF investment limitsNon-accredited: max of $2,500 or 5% of annual income/net worth
Reg S geofencingUS vs. non-US investor determination for offshore offerings
Reg A+ limits$75M annual offering cap per issuer
PEP / EDDEnhanced due diligence required for politically exposed persons
Resale restrictions12-month hold period enforcement for Reg D/CF lots (FIFO)

Fail-closed: If buyer details cannot be fetched, the order is rejected. Per Disclosure 1.2: "the Firm may decline to participate in any transaction if such information is not provided to its satisfaction."

Accreditation Enforcement

Primary Market (BUY orders)

Asset accreditationTypeRequirementVerification
506c (Reg D)Verified accredited ONLYThird-party verification via Jumio/Onfido
506b (Reg D)Self-certified accreditedSelf-certification, accreditationStatus === 'completed'
Retail / nullNo accreditation needed--

Code Enforcement Points

All order creation paths are gated:

PathLayerModule
Standard ordersCEX pre-tradeliquidityio/cex/pkg/compliance
Order modificationsCEX pre-tradeliquidityio/cex/pkg/compliance
Pre-IPO ordersCEX pre-tradeliquidityio/cex/pkg/compliance
Bulk ordersCEX pre-tradeRouted through standard pre-trade pipeline

Resale Restrictions

Default 12-Month Hold

Securities issued under Reg D and Reg CF are subject to a 12-month holding period. Enforced via restriction_end_date on sell order lots (FIFO tracking).

Resale Exemptions

RegulationExemptionStatus
Reg D 506(b/c)Unsolicited sale to accredited investors within 1 yearEnforced
Reg CFNon-accredited can sell to accredited within 1 yearEnforced
Reg CFFamily member exemption (estate, gift, divorce)Not yet implemented
Reg SFree trading among non-US investorsNot yet implemented
Reg SBlock US investor purchases during 1-year distributionNot yet implemented

RegCF Investment Limits

Non-accredited investors are subject to SEC Reg CF investment caps:

  • Maximum of the greater of $2,500 or 5% of annual income/net worth
  • Accredited investors have no investment limit

Post-Trade Surveillance

The surveillance service (liquidityio/cex/pkg/surveillance) runs as a post-trade hook on every executed trade.

DetectionDescription
Wash tradingDetects matched trades between related accounts or same beneficial owner
StructuringIdentifies transactions split to avoid reporting thresholds
Velocity anomaliesFlags unusual transaction frequency or volume spikes
Price spike detectionMonitors for abnormal price movements that may indicate manipulation
Layering / spoofingDetects rapid order placement and cancellation patterns
Front-runningMonitors for suspicious order timing relative to large block orders

Flagged activity is escalated to the compliance team and, where required, reported to FINRA and relevant regulators.

Regulatory Reporting

FINRA

ReportFrequencyDescription
OATS (Order Audit Trail System)Real-timeFull order lifecycle audit trail
ATS-NQuarterly + amendmentsATS operational transparency filing
CAT (Consolidated Audit Trail)T+1All orders, quotes, and trades
Form ATSAnnual + amendmentsATS registration and amendments
TRACEReal-timeFixed income transaction reporting

International

ReportJurisdictionDescription
MiFID IIEUTransaction reporting, best execution, RTS 25 clock sync
MiFIREUTrade and transaction reporting to ARMs
FCAUKTransaction reporting for UK-regulated activities

The reporting service (liquidityio/cex/pkg/reporting) generates all required feeds as a post-trade hook, configured with the ATS name and CRD ID.

Disclosure Requirements

Currently Enforced

  • Accredited investor verification at each transaction (Disclosure 1.1)
  • Fail-closed on verification failure (Disclosure 1.2)
  • Transfer restriction enforcement via restriction dates (Disclosure 2.2)
  • Portfolio ownership validation for sellers (Disclosure 9.1)

Future Implementation

  • Signed disclosure acknowledgment before each secondary trade (Disclosure 11.1)
  • ROFR / issuer consent check at order creation time (Disclosure 5.2)
  • Investor sophistication assessment beyond KYC

E2E Test Coverage

TestFileWhat it validates
Accreditation gate (API)universe/e2e/23-accreditation-guard.spec.tsUnaccredited BUY on 506b/506c -- rejected
Pre-IPO gate (API)Same fileUnaccredited pre-IPO BUY -- rejected
Dividend labels (API)universe/e2e/24-dividend-labels.spec.tsNo INTERNAL transactions with DISBURSEMENT metadata
Dividend labels (UI)Same fileWallet shows "Dividend" label

Run:

E2E_BASE_URL=https://exchange.next.liquidity.io npx playwright test e2e/23 e2e/24

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