Coinbase Denies Proprietary Trading

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Coinbase Denies Proprietary Trading

By Ryan Warner
September 20th, 2018

Coinbase denies allegations it engages in proprietary trading and that such activity accounts for 20% of their overall trading volume.

The New York Attorney General's Office published a report this week stating they discovered proprietary trading common in crypto markets, where a firm trades on its own platform against its customers.

The report stated:

“The OAG found that significant variation exists in the amount of trading activity attributable to those platform operators. Circle reported that it accounted for less than one percent of the executed volume on its platform Poloniex during the most recent time period reviewed. BitFlyer USA indicated that its own activity accounted for approximately ten percent of the executed volume on its platform. Another, Coinbase, disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading.”

This practice is common with traditional securities markets, the OAG noted, but raises “serious questions about the risks customers face on those platforms,” as it can mislead customers about the true liquidity of a market and make it difficult to execute trades during times of high volatility.

Mike Lempres, the chief policy officer of Coinbase, said in a blog Wednesday that the exchange doesn't operate with proprietary trading and that the volume the OAG noted is the exchange acting on behalf of retail brokerage customers.

He stated:

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

Customers using the retail brokerage platform do not see an order book, but rather a single buy and sell price for an asset. Once an order is issued by a customer it is fulfilled on the Coinbase market, this action is hidden from the customer who only sees funds leave or enter their wallet.

Lempres went on to say that Coinbase does not act as a market market nor operates an in-house trading desk. Stating:

“The volume figure stated in the report has been misreported in the media as ‘self-trading,’ which is inaccurate. The figure represents customer-driven volume via Coinbase Consumer. Coinbase does not operate a proprietary trading desk, nor does it undertake market making actions.”