FT: Crypto.com organized prop trading in secret


The Crypto.com platform has set up a prop trading division whose employees have pledged not to talk about their work. This is reported by the Financial Times, citing informed sources.

The publication explained that in most markets, market making, along with prop trading, is carried out by organizations not related to the platform.

The company has set a goal to hide such activities.

Crypto.com denied any substandard relationship between internal trading, which was positioned as market making, and the platform for transactions by customers.

According to one of the interlocutors of the publication, the prop trading department was created “to make money”, and not to increase the liquidity of the exchange. At the same time, employees use not only the “native”, but also other platforms.

“Crypto.com ranks internal and third-party market makers as those who contribute to capping spreads and making markets more efficient. This is not a prohibited practice.” — reported in the press service.

Employees explained that most of the income is generated by an application with a focus on retail investors, where the firm acts as a broker.

“We are risk neutral by hedging these positions on a number of exchanges, including Crypto.com itself.” added to the company.

The Financial Times recalled that such a phenomenon was common in the crypto industry. Journalists cited BitMEX and Binance as examples. They recalled that recently they have strengthened the positions of criticism of such a business model. The latter indicate a conflict of interest due to potential front running exchanges against clients.

In SEC lawsuits against Binance and Coinbase in June 2022, the regulator pointed to the integrated model of both sites.

“Coinbase combines three functions that are usually separated in traditional securities markets – a broker, an exchange, and a clearing house,” the document says.

In response to the lawsuit, representatives of the American platform refused to change the business model.

Former head SEC Gary Gensler called the cryptocurrency market centralized. The official warned of possible prosecution of unregistered bitcoin exchanges.

Subsequently, the head of the Commission warned the platforms about the inconsistency with the status of custodians. The comment was made in the context of the agency’s proposal to extend the asset holding rule established in 2009 to cryptocurrencies.

To qualify as a qualified custodian, a firm will need to ensure proper segregation of all assets, undergo annual audits by certified accountants, and take other steps to create transparency.

Recall that in 2022-2023, Crypto.com held several rounds of staff cuts to optimize in the crypto winter.

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