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Are there other financial markets where a single entity is custodian, trading exchange, market maker, and Kyc/Aml all under on roof? It seems like a fundamenta

Are there other financial markets where a single entity is custodian, trading exchange, market maker, and Kyc/Aml all under on roof? It seems like a fundamental conflict of interest.

tornato7 3y ago
Coinbase is not a market maker. Only FTX had that going, through Alameda.
- andirk 3y ago
  Any large player can move markets albeit not like the Alameda scam. In Coinbase's case, listing a coin can be a big deal. However, I've tried to time those new listings and it doesn't seem to do too much re: value.
chemmail 3y ago
The only reason Bitcoin and hence crypto actually worked is because the creator all but disappeared. This removes any and all conflict of interest for the rules of bitcoin. Unfortunately no other coin has this, and Satoshi can actually come back at any time.
- duxup 3y ago
  What does that have to do with the other user’s question?
- tromp 3y ago
  Satoshi certainly did have a conflict of interest as he ended up hoarding 5% of all bitcoin. Other coins also had disappearing creators, including ones where the creators received no financial rewards whatsoever.
olalonde 3y ago
It's great for customers but not so great for "brokers". Securities exchanges in the US are not allowed to let retail customers trade directly and have to go through "brokers" (basically middlemen who take a cut on transactions).
- lottin 3y ago
  The ability of a service provider, such as a broker, to set prices above production costs depends on the amount of competition in the market. The higher the competition, the thinner the margins are going to be. So, a monopolistic broker that doubles as exchange is absolutely not good for customers. In this scenario customers will be charged higher prices for brokerage services, compared to what they would be paying in a competitive market.
  - olalonde 3y ago
    Why would adding middlemen lower prices? If it dit, why not require another layer? Brokers of brokers, etc. I think you can see that it doesn't make sense.
    - lottin 3y ago
      Okay... I see this is going to be a tough one. You're not adding an intermediary. The broker and the exchange do different jobs. Coinbase is an exchange and a brokerage firm. Under the current arrangement, Coinbase is providing its customers with both exchange and brokerage services, so Coinbase customers are paying for both. If Coinbase was providing exchange services to brokerage firms, and these brokerage firms were providing brokerage services to retail investors, these investors would still be paying for both services (directly or indirectly), but prices would be lower due to competition among brokerage firms.
      - olalonde 3y ago
        I don't understand what you mean here. In what way do you consider Coinbase a brokerage? Users on Coinbase can trade directly on its exchange and pay trading fees. Restricting the exchange to only brokers would mean that the middlemen ("brokers") would now pay the trading fees and pass that cost onto their customers, plus some brokerage fee (which means a higher total fee for users). The broker-intermediated trades are necessarily more costly than the direct trades.
jrm4 3y ago
I mean, of course there are. I can't name them at this stage, but you'd be naive to not understand that those Dark Pool things are essentially that. Now, are there "openly visible ones?"
- iudqnolq 3y ago
  You do know that the Dark in Dark Pool refers to the trades being secret, not the pools themselves? You can get a (partial) list of dark pool names from Wikipedia. https://en.m.wikipedia.org/wiki/Dark_pool https://en.m.wikipedia.org/wiki/Dark_pool
  - steveBK123 3y ago
    The trades aren't even secret, they just don't publish a bid/ask (quote). The trades go to the same consolidated tape as NYSE/NASDAQ/ARCA/AMEX, etc.
- e63f67dd-065b 3y ago
  That's not what dark pools are at all, please educate yourself before saying something this inaccurate. > custodian, trading exchange, market maker, and Kyc/Aml Custodians are people who hold on to funds and securities. If a mutual fund buys a share of Apple, they don't hold the share themselves, it's held by a custodian bank like BNY. > trading exchange NYSE/NASDAQ/CBOE/etc are examples of exchanges, where they match up buy orders and sell orders, and nothing more. Dark pools are examples of exchanges, as they are a private place that match up buy/sell orders. > market maker Market makers are, as their name suggests, institutions that exist to make markets. What this often means is that they have the obligation to maintain both buy and sell orders on specific securities they signed up to make markets for at all times. Examples include Jane Street, Citadel, etc. > kyc/aml GP probably mistyped; kyc/aml are regulations that must be followed by financial firms interacting with their customers. Applies to basically everybody here. A few more: Clearinghouses: when you trade a security on an exchange, you mere commit to buying x for $y at $settlement date, typically 2 business days after the trade happens. This settlement happens at a clearinghouse, which guarantees both sides of the trade. The objection from most regulators is that a crypto exchange typically acts as all of the above simultaneously. They are custodians, in that they hold the crypto, they typically make markets, they are obviously an exchange, they provide clearing and settlement services, all at once. Regulators don't like this, since there are conflicts of interest inherent in the roles and they should be separated out into different institutions.
deleted 3y ago
[deleted]
pclmulqdq 3y ago
The ads market comes to mind here, but it is a pretty clear violation of securities law to have the broker and the exchange be the same company for financial products.
- samwillis 3y ago
  Don't get me started on the ad market. One company is the broker, the exchange, a major placement vendor, and the software vendor for algorithmic trading (which is a black box anyway). On top of that, in order to trade, you have to show them your books so they know everything about your business. And finally there is the extortion as well, don't advertise against your own name, oh sorry someone else is paying more. The whole thing is engineered to extract every last ounce of margin from the advertisers. However due to the duopoly of the two colluding players (they carefully don't compete with each other) there is no choice. It's frankly absurd the situation we have gotten into with online ads. It needs significant regulation.
atdrummond 3y ago
Other market makers (Wintermute, Keyrock, B2C2, etc) work with all major CEXes, including Coinbase. This is the same for custodians like Anchorage Digital. I feel like Coinbase would use this info to argue against being truly monopolistic of some or all of those markers. I am definitely certain that Coinbase (specifically Paul Grewal, their head lawyer, and, previously, Alex Marx, former head of risk) have prepared for similar claims to be made. They have an extensive roadmap of expected legal challenges and their plans to ameliorate any damage done to their business model. I’m confident their goal is dismantle any claim that they have monopolistic control of a customer’s crypto once purchased.
cturner 3y ago
Many methods of foreign exchange are. Insurance can be. If anything, it is equities that is unusual, because that market is designed to be accessible to retail investors, with significant consumer protections.
baby 3y ago
Why?
- rich_sasha 3y ago
  All sorts of reasons. KYC/AML: the exchange wants your business so is more willing to drop their standards. In most markets most participants trade through brokers who also need to do these checks. Market making: the exchange has an unprecedented insight into how it matches trades and the scope to front run other traders. Perhaps even introduce "oops" bugs that their MM then exploits.
mlrtime 3y ago
Please provide your source on Coinbase being a market maker. Do you have any information here because it's clearly wrong. Please check before making these claims.
- tarunupaday 3y ago
  i do not know why you are being downvoted. coinbase is not market maker - in the traditional sense of the word. “market maker” has a very specific meaning. just because they can “move markets” or “list coins” does not make them market maker.
  - weard_beard 3y ago
    They provide liquidity by internalizing orders and never bothering to acquire the underlying. Isn’t that the definition?
    - Kranar 3y ago
      No.
    - jcranmer 3y ago
      What you're describing is a typical aspect of brokers. Market makers provide large standing buy and sell orders so that anyone who wants to buy/sell a security at ~market price can do so.
      - weard_beard 3y ago
        I just described the sausage making of, “anyone who wants to buy/sell a security at ~market price can do so.” I’m sorry you don’t like sausage.
yashg 3y ago
Crypto is not a financial market. It's a gambling den. Unregulated one. Scammers use financial sounding mumbo-jumbo to lure destitute suckers with promises of infinite riches. Same old game. Wash trading with make believe shitcoins in magic internet tokens keeps the line going up so DCAing idiots keep providing exit liquidity to OGs to unload their magic tokens.
- Datagenerator 3y ago
  Market makers which are in the game of naked short selling and using Dark markets to route orders to is the real financial market?
  - styren 3y ago
    Are you implying that they are not providing liquidity to "real financial markets"? In that case do you mind making your argument?
    - weard_beard 3y ago
      Providing liquidity by infinitely counterfeiting shares and routing them off exchange to prevent accurate price discovery is only “useful” to the cartel who sell options. If you’re implying that somehow grandma is being done a disservice because her pension fund can’t make the trades they want when they want then YOU need to explain how “liquidity” benefits anyone that matters.
      - styren 3y ago
        I didn't imply anything, I was asking for his reasoning since he didn't provide any. And I'm not sure how to respond to anyone that buckets people into those that do and those that don't matter. Your argument doesn't seem to be made in good faith. Such a weird attack and downvote just for asking for a clarification?
        weard_beard 3y ago
weard_beard 3y ago
Yes, Citadel securities.
yellowapple 3y ago
The apartment rental market seems like it comes pretty close.

Are there other financial markets where a single entity is custodian, trading exchange, market maker, and Kyc/Aml all under on roof? It seems like a fundamental conflict of interest.

tornato7 3y ago

Coinbase is not a market maker. Only FTX had that going, through Alameda.

andirk 3y ago
Any large player can move markets albeit not like the Alameda scam. In Coinbase's case, listing a coin can be a big deal. However, I've tried to time those new listings and it doesn't seem to do too much re: value.

chemmail 3y ago

The only reason Bitcoin and hence crypto actually worked is because the creator all but disappeared. This removes any and all conflict of interest for the rules of bitcoin. Unfortunately no other coin has this, and Satoshi can actually come back at any time.

duxup 3y ago
What does that have to do with the other user’s question?
tromp 3y ago
Satoshi certainly did have a conflict of interest as he ended up hoarding 5% of all bitcoin. Other coins also had disappearing creators, including ones where the creators received no financial rewards whatsoever.

olalonde 3y ago

It's great for customers but not so great for "brokers". Securities exchanges in the US are not allowed to let retail customers trade directly and have to go through "brokers" (basically middlemen who take a cut on transactions).

lottin 3y ago
The ability of a service provider, such as a broker, to set prices above production costs depends on the amount of competition in the market. The higher the competition, the thinner the margins are going to be. So, a monopolistic broker that doubles as exchange is absolutely not good for customers. In this scenario customers will be charged higher prices for brokerage services, compared to what they would be paying in a competitive market.
- olalonde 3y ago
  Why would adding middlemen lower prices? If it dit, why not require another layer? Brokers of brokers, etc. I think you can see that it doesn't make sense.
  - lottin 3y ago
    Okay... I see this is going to be a tough one. You're not adding an intermediary. The broker and the exchange do different jobs. Coinbase is an exchange and a brokerage firm. Under the current arrangement, Coinbase is providing its customers with both exchange and brokerage services, so Coinbase customers are paying for both. If Coinbase was providing exchange services to brokerage firms, and these brokerage firms were providing brokerage services to retail investors, these investors would still be paying for both services (directly or indirectly), but prices would be lower due to competition among brokerage firms.
    - olalonde 3y ago
      I don't understand what you mean here. In what way do you consider Coinbase a brokerage? Users on Coinbase can trade directly on its exchange and pay trading fees. Restricting the exchange to only brokers would mean that the middlemen ("brokers") would now pay the trading fees and pass that cost onto their customers, plus some brokerage fee (which means a higher total fee for users). The broker-intermediated trades are necessarily more costly than the direct trades.

jrm4 3y ago

I mean, of course there are. I can't name them at this stage, but you'd be naive to not understand that those Dark Pool things are essentially that. Now, are there "openly visible ones?"

iudqnolq 3y ago
You do know that the Dark in Dark Pool refers to the trades being secret, not the pools themselves? You can get a (partial) list of dark pool names from Wikipedia. https://en.m.wikipedia.org/wiki/Dark_pool https://en.m.wikipedia.org/wiki/Dark_pool
- steveBK123 3y ago
  The trades aren't even secret, they just don't publish a bid/ask (quote). The trades go to the same consolidated tape as NYSE/NASDAQ/ARCA/AMEX, etc.
e63f67dd-065b 3y ago
That's not what dark pools are at all, please educate yourself before saying something this inaccurate. > custodian, trading exchange, market maker, and Kyc/Aml Custodians are people who hold on to funds and securities. If a mutual fund buys a share of Apple, they don't hold the share themselves, it's held by a custodian bank like BNY. > trading exchange NYSE/NASDAQ/CBOE/etc are examples of exchanges, where they match up buy orders and sell orders, and nothing more. Dark pools are examples of exchanges, as they are a private place that match up buy/sell orders. > market maker Market makers are, as their name suggests, institutions that exist to make markets. What this often means is that they have the obligation to maintain both buy and sell orders on specific securities they signed up to make markets for at all times. Examples include Jane Street, Citadel, etc. > kyc/aml GP probably mistyped; kyc/aml are regulations that must be followed by financial firms interacting with their customers. Applies to basically everybody here. A few more: Clearinghouses: when you trade a security on an exchange, you mere commit to buying x for $y at $settlement date, typically 2 business days after the trade happens. This settlement happens at a clearinghouse, which guarantees both sides of the trade. The objection from most regulators is that a crypto exchange typically acts as all of the above simultaneously. They are custodians, in that they hold the crypto, they typically make markets, they are obviously an exchange, they provide clearing and settlement services, all at once. Regulators don't like this, since there are conflicts of interest inherent in the roles and they should be separated out into different institutions.

deleted 3y ago

[deleted]

pclmulqdq 3y ago

The ads market comes to mind here, but it is a pretty clear violation of securities law to have the broker and the exchange be the same company for financial products.

samwillis 3y ago
Don't get me started on the ad market. One company is the broker, the exchange, a major placement vendor, and the software vendor for algorithmic trading (which is a black box anyway). On top of that, in order to trade, you have to show them your books so they know everything about your business. And finally there is the extortion as well, don't advertise against your own name, oh sorry someone else is paying more. The whole thing is engineered to extract every last ounce of margin from the advertisers. However due to the duopoly of the two colluding players (they carefully don't compete with each other) there is no choice. It's frankly absurd the situation we have gotten into with online ads. It needs significant regulation.

atdrummond 3y ago

Other market makers (Wintermute, Keyrock, B2C2, etc) work with all major CEXes, including Coinbase. This is the same for custodians like Anchorage Digital. I feel like Coinbase would use this info to argue against being truly monopolistic of some or all of those markers. I am definitely certain that Coinbase (specifically Paul Grewal, their head lawyer, and, previously, Alex Marx, former head of risk) have prepared for similar claims to be made. They have an extensive roadmap of expected legal challenges and their plans to ameliorate any damage done to their business model. I’m confident their goal is dismantle any claim that they have monopolistic control of a customer’s crypto once purchased.

cturner 3y ago

Many methods of foreign exchange are. Insurance can be. If anything, it is equities that is unusual, because that market is designed to be accessible to retail investors, with significant consumer protections.

baby 3y ago

Why?

rich_sasha 3y ago
All sorts of reasons. KYC/AML: the exchange wants your business so is more willing to drop their standards. In most markets most participants trade through brokers who also need to do these checks. Market making: the exchange has an unprecedented insight into how it matches trades and the scope to front run other traders. Perhaps even introduce "oops" bugs that their MM then exploits.

mlrtime 3y ago

Please provide your source on Coinbase being a market maker. Do you have any information here because it's clearly wrong. Please check before making these claims.

tarunupaday 3y ago
i do not know why you are being downvoted. coinbase is not market maker - in the traditional sense of the word. “market maker” has a very specific meaning. just because they can “move markets” or “list coins” does not make them market maker.
- weard_beard 3y ago
  They provide liquidity by internalizing orders and never bothering to acquire the underlying. Isn’t that the definition?
  - Kranar 3y ago
    No.
  - jcranmer 3y ago
    What you're describing is a typical aspect of brokers. Market makers provide large standing buy and sell orders so that anyone who wants to buy/sell a security at ~market price can do so.
    - weard_beard 3y ago
      I just described the sausage making of, “anyone who wants to buy/sell a security at ~market price can do so.” I’m sorry you don’t like sausage.

yashg 3y ago

Crypto is not a financial market. It's a gambling den. Unregulated one. Scammers use financial sounding mumbo-jumbo to lure destitute suckers with promises of infinite riches. Same old game. Wash trading with make believe shitcoins in magic internet tokens keeps the line going up so DCAing idiots keep providing exit liquidity to OGs to unload their magic tokens.

Datagenerator 3y ago
Market makers which are in the game of naked short selling and using Dark markets to route orders to is the real financial market?
- styren 3y ago
  Are you implying that they are not providing liquidity to "real financial markets"? In that case do you mind making your argument?
  - weard_beard 3y ago
    Providing liquidity by infinitely counterfeiting shares and routing them off exchange to prevent accurate price discovery is only “useful” to the cartel who sell options. If you’re implying that somehow grandma is being done a disservice because her pension fund can’t make the trades they want when they want then YOU need to explain how “liquidity” benefits anyone that matters.
    - styren 3y ago
      I didn't imply anything, I was asking for his reasoning since he didn't provide any. And I'm not sure how to respond to anyone that buckets people into those that do and those that don't matter. Your argument doesn't seem to be made in good faith. Such a weird attack and downvote just for asking for a clarification?
      - weard_beard 3y ago

weard_beard 3y ago

Yes, Citadel securities.

yellowapple 3y ago

The apartment rental market seems like it comes pretty close.