After beginning its investigation into virtual markets five months ago, the OAG has now released its report, which features significant criticisms of cryptocurrency exchanges.
In April 2018, the New York Attorney General's office announced[1] the Virtual Markets Integrity Initiative. As part of the investigation, the office sent a survey to 13 cryptocurrency exchanges to find out more about their practices and procedures and determine the markets' risk to investors.
Today the Office of the Attorney General (OAG) released its findings in a 40-page report[2]. Here are some of the highlights:
Exchanges aren't able to combat abuse.
The report found that exchanges have not yet developed sufficient safeguards against potential abuse.
The report states:
"Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns. There is no mechanism for analyzing suspicious trading strategies across multiple platforms. Few platforms seriously restrict or even monitor the operation of 'bots' or automated algorithmic trading on their venues. Indeed, certain trading platforms deny any responsibility for stopping traders from artificially affecting prices."
Exchanges are allowed to do wash trading; people aren't (but probably do it anyway).
Most exchanges have policies that prohibit a single user from opening multiple accounts. These are intended to prevent wash trading, the practice of buying and selling (essentially to one's self) as a means of price manipulation. However, very few exchanges have any means of enforcing such policies.
"A prohibition against multiple accounts is only effective if a platform can actually detect customers attempting to open multiple accounts. That requires robust on-boarding procedures, including multiple forms of identification verification, and other countermeasures."
But few exchanges have extensive KYC polices. And, though customers are (at least theoretically) prohibited from wash trading, the
