2023-06-28 06:03:40
It is now known that Sam Bankman-Fried (SBF) secretly diverted FTX clients’ money to his own trading firm, Alameda Research, and used it to trade once morest those same clients on FTX. Unfortunately, FTX is not the only crypto exchange that has worked once morest its own customers. In the 1990s and 2000s, binary options exchanges and forex exchanges regularly operated “B Book” exchanges – where forex brokers placed orders on the opposite side of the client’s trade. Unlike “A book” forex brokers, who actually execute client orders on an independent exchange, B book brokers simply record client orders and settle trades internally. Digital crypto exchanges probably trade once morest their clients more often than they would ever admit. In fact, the name of the Binance crypto exchange is a combination of the words “binary options” and “finance”. In fact, when most clients lose money trading with leverage, there is a financial incentive for the exchanges to trade once morest them. FTX was particularly egregious in directly siphoning customers’ funds from the exchange to trade once morest them on their other platform. Now let’s take a closer look at the entanglements of the crypto exchanges that worked once morest their own customers. Trading Against Customers at Mt. Gox A former customer named Gregory Greene was the plaintiff in a 2014 lawsuit. He claimed that Mt. Gox CEO Mark Karpeles created a Gox Bot that uses trading fees and “Mt. Gox loans” he might trade once morest customers. In 2019, a Japanese court dismissed most of the original charges once morest Karpeles. But he convicted him of data falsification for activity related to the Gox Bot, as well as for Karpeles bloating Mt. Gox’s holdings by altering records. BitMEX In 2018, the head of BitMEX, Arthur Hayes, admitted to trading for profit using a market maker owned by the crypto exchange. BitMEX offered up to 100x leverage. Managers knew that most leveraged traders would lose money. Instead of remaining independent, BitMEX also operated a second for-profit trading company that took over the trades of BitMEX clients who failed to trade. The leaders of BitMEX only admitted their actions following several months of investigation into BitMEX’s “market-making” activities. The Commodity Futures Trading Commission (CFTC) alleged that BitMEX violated the Commodity Exchange Act (CEA) by operating an unregistered platform that operated once morest some of its own clients’ trades. The case ended with the CFTC announcing that it had reached a settlement with the companies that operate BitMEX, ordering the crypto exchange to pay a $100 million fine. CFTC Alleged Binance Traded Against Its Customers On March 23rd this year, the CFTC filed a complaint alleging that Binance head Changpeng Zhao (CZ) repeatedly violated commodity trading rules. The alleged violations include “operating a system for trading or processing swaps without being registered as a swaps trading platform.” The CFTC also suspects Binance of evading CEA provisions. Sigma Chain and Merit Peak, entities controlled by CZ, operated hundreds of accounts that took the opposite position in the trades of many of Binance’s clients, according to the CFTC. Bitfinex On October 15, 2021, the CFTC ordered Bitfinex to pay a $1.5 million fine for, among other things, acting as an illegal counterparty in trades. The CFTC alleged that Bitfinex’s peer-to-peer lending program funded most of the margin trades and that Bitfinex frequently liquidated individual clients’ positions. Counter-Trading at Abra On July 13, 2020, the CFTC fined two companies operating the Abra exchange $150,000, also for violating the CEA. Abra operated a mobile app that allowed customers to create digital asset and currency contracts, and sometimes acted as a counterparty to the contracts. Specifically, by “acting as a counterparty” and “by entering into these contracts through their application, the defendants violated the section of the CEA, which makes it unlawful for any person other than authorized participants to enter into a swap, unless if the swap is concluded on a trading market designated as a contract market or subject to its rules. In addition, the defendants unlawfully acted as unregistered futures brokers in seeking and accepting orders for these contracts.” the CFTC found.
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#crypto #exchanges #traded #clients
