Monday, 22 October, 2018

Cryptocurrency markets are wide open to insider trading, USA regulators say

New York Says Three Crypto Exchanges May Be Breaking the Law Cryptocurrency Exchanges Are Vulnerable to Manipulation, Report Finds
Priscilla Morrison | 20 September, 2018, 04:34

This was revealed in a new report on the Virtual Markets Integrity Initiative released by the Office of the New York State Attorney General (OAG) on September 18.

This idea for this report was sparked back in April 2018, when the Attorney General's office sent out requests for information to 13 "major" virtual currency trading platforms in a bid to garner more information about their "operations, internal controls, and safeguards to protect customer assets".

As a result of the findings, the attorney general asked New York's Department of Financial Services (NYDFS) to review whether three exchanges might be operating unlawfully in the state. Interestingly enough, the aforementioned exchanges had refused to provide information to regulators on a previous date, which might have led to the filing of this potentially incriminating report. While nine exchanges responded to the inquiries, four abstained, including Kraken, who overtly dismissed the 34-point questionnaire in the following tweet. In thinly traded markets, it becomes very easy for so-called "whales" or large holders to move the price of bitcoin, or any cryptocurrency, in whatever directly they want.

Like many cryptocurrency exchanges, Kraken left NY after the state adopted its controversial "BitLicense" regulatory framework.

"The attorney general's report underscores the value of strong state regulation and consumer protections", said Maria Vullo, the superintendent of the state Department of Financial Services.

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The NYAG's office found that some exchanges could quantify how much trading activity on their platforms came from their own operations.

"Each role has a markedly different set of incentives, introducing substantial potential for conflicts between the interests of the platform, platform insiders and platform customers", the report states. The report notes that the platforms that refused to respond are based outside of the US and may not disclose all order types offered to certain traders, labeling Kraken's rejection of initiative participation as "alarming". The report concluded that many cryptocurrency platforms haven't taken serious steps to monitor and stop manipulative trading, and few monitor or restrict the use of trading bots. "Most platforms seem to cater to professional, automated traders, with many venues offering special pricing and other features to such traders, leaving retail customers at a disadvantage". Some exchanges also allow their own employees to hold and trade on their own or competing platforms.

As pointed out by The Wall Street Journal, the attorney general's report suggests "protections for consumer funds are often limited or illusory". "That makes it hard or impossible to confirm whether platforms are responsibly holding their customers' virtual assets as claimed". "Many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges".

"Customers would do well to avoid platforms that can not satisfactorily answer the question posed in this report", it said.

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