20% of the Coinbase trade volume owes to trading on its own platform
A new report published by the Office of the New York State Attorney General (OAG) titled “Virtual Markets Integrity Initiative Report,” reveals that several cryptocurrency exchanges resort to proprietary trading including Coinbase. These exchanges were found to have discrepancies in their actual trade volumes.
Proprietary trading is when a firm invests for its own gain instead of trading on behalf of their clients for a commission. Proprietary trading not only helps in earning better returns but also can also serve as a factor to improve liquidity. This is done in order to improve chances of customers orders being fulfilled in case there are no willing buyer or sellers at the moment of the trade. “Such activity […..] requires a significant commitment to customer protections and transparency to remain in compliance with applicable laws,” according to OAG.
The OAG conducted a probe on 13 cryptocurrency exchanges including Coinbase and Bitfinex. The probe found that five exchanges including Coinbase and Bitfinex admitted to trading on its own venue. The OAG found that the amount of trading activity didn’t correspond to the actual trade volume figures of these exchanges. Coinbase confessed to 20% of their trade volumes owing to trading on their own platform. Some exchanges, most notably Kraken, failed to submit to the probe. The OAG said that half of these confessed to proprietary trading on their platform.
“Such high levels of proprietary trading raise serious questions about the risks customers face on those platforms. As a general principle, when a significant percentage of the volume in one or more assets on a venue is attributable to one source, customers face the risk that the availability of liquidity in those assets could change, without notice and at any time, including when liquidity is needed most – namely, in times of market volatility or rapid price movement,” read the report. The OAG went on to question the credibility of these exchanges in the eyes of the customers.
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