A report published by the Office of the New York State Attorney General (OAG) on Wednesday revealed that several cryptocurrency exchanges resort to proprietary trading, including Coinbase.
The OAG, who conducted a probe on 13 cryptocurrency exchanges found that five exchanges, including Coinbase and Bitfinex, admitted to trading on their own venues. Coinbase confessed to 20% of its trade volumes were from trading on its own platform. The OAG raised concerns regarding the credibility of the exchanges that had confessed to internal trading.
Coinbase, in a recent blog post, has denied OAG’s allegations and stated that it did not engage in proprietary trading. Mike Lempres, chief policy officer at Coinbase, clarified that the exchange does not trade for its own benefit. He went on to explain that to provide an easy-to-use customer experience, a customer quotes a price and fills the order from the platform. This enables customers to effectively utilize the liquidity offered by the company. “When Coinbase executes these trades, it does so on behalf of Coinbase Consumer customers, not itself,” wrote Lempres.
He also said that the media had misstated Coinbase’s trade volume quoted by the report as ‘self-trading’. He argued that the trade volume figure represents the ‘customer-driven volume via Coinbase consumer’. He stressed that the exchange was not a market maker and it does not have a ‘proprietary trading desk’. “Our goal is to be the world’s most trusted place to buy, store and interact with cryptocurrency. We welcome oversight and will continue to work with regulators to promote the cryptocurrency ecosystem,” he wrote.
For those who may not know, 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 can also serve as a factor in improving liquidity. This is done to improve chances of customers orders being fulfilled, in case there are no willing buyers or sellers at the time of trade. “Such activity […..] requires a significant commitment to customer protections and transparency to remain in compliance with applicable laws,” the OAG stated.
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