Coinbase denies New York Attorney General’s allegations of prop trading

September 20, 2018
Chris Wheal

Cryptocurrency exchange Coinbase denied proprietary trading on Wednesday following allegations by the New York Attorney General that nearly 20% of transactions on its platform were on its own account.

Coinbase denies proprietary trading on its exchange platform

Barbara Underwood, the chief legal officer of New York State, published a far-reaching report on Tuesday, looking into cryptocurrency exchanges: the regulatory framework behind them, compliance issues and consumer protection were among the topics investigated.

Virtual Markets Integrity Report

The Virtual Markets Integrity Report raised issues also about the ability of exchange platforms to stop abusive trading activity. Proprietary trading – where financial services companies trade assets on their own behalf – can often affect the value of investments held by their customers.

Regulations that followed the financial crisis of 2008 banned the practice in some countries – particularly the US, where the Volcker rule forced many banks to spin their prop-trading desks into private investment firms.

The New York Attorney General’s report suggested around 20% of executed volume on Coinbase’s plaform was for its own benefit.

Barbara Underwood, NY Attorney General

“Such high levels of proprietary trading raise serious questions about the risks customers face on those platforms,” Underwood commented.

Coinbase issues denial statement

The San Francisco-based exchange responded with a firm rebuttal of the allegation, from the company’s chief policy officer Mike Lempres, who claimed Underwood’s statement had been misrepresented.

“Coinbase does not trade for the benefit of the company on a proprietary basis,” he said.

“In order to provide an easy-to-use customer experience, Coinbase Consumer quotes a price and then quickly fills the order from our exchange platform (Coinbase Markets). This takes advantage of the liquidity provided by the entire Coinbase ecosystem.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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