In addition, the order finds that while Hedger and Replicator had independent purposes, in practice the programs matched orders with one another in certain trading pairs, resulting in trades between accounts owned by Coinbase."
Doesn't sound very accidental.
> The order also finds that over a six-week period—August through September 2016—a former Coinbase employee used a manipulative or deceptive device by intentionally placing buy and sell orders in the Litecoin/Bitcoin trading pair on GDAX that matched each other as wash trades. This created the misleading appearance of liquidity and trading interest in Litecoin.
We always knew that wash trading activity was rampant in the cryptocurrency space, but I didn't actually expect Coinbase employees to be doing it within Coinbase. If employees of the most regulated exchange in the world were wash trading with some regularity, makes you wonder how bad it must be at some of the more Wild West exchanges.
And I literally worked on a Dark Pool Crossing Engine myself at the the time, and here's my take:
Having multiple algorithms running at the same time was...unremarkable. And since they're all running different algorithms and all trying to game the market, it wouldn't surprise me if they ended up trading with each other by accident, especially if they had multiple accounts to trade with. What's honestly more surprising is that they only had two running at once. And further, if they both traded through a dark pool, then there's no way they could know they were trading with each other, because that's one of the intended features of a dark pool.
So accidental seem plausible, but then again so does malice.
Now if it wasn't through a dark pool, and the algos could see each other's accounts, then naughty naughty, and they deserved every cent of the fine.
Having two separate algos directly and actively trading in the wild is highly unusual.
There are obvious reasons for which you don't want your algos to trade one against the other on the market.
First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
But more directly for simple execution costs/fees reasons.
I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
No it's not. ATD had like 50.
>There are obvious reasons for which you don't want your algos to trade one against the other on the market.
Who said they're trading against each other? Just look at GME. Swapping shares back and forth makes trading volume go up.
Every imbalance is gameable, and they have armies of people whose job is to find every gameable imbalance and make money off of it.
>First, it's very dangerous as you can end up in the situation described here where you essentially self make the market.
As we've seen when traders have bankrupted themselves.
>I don't know of any single player that has concurrent algos where there is not a "netting" layer between algos and the market, so that concurrent trades are matched internally before reaching the market.
Well I know of one that had 15+, and coinbase just got busted with two so...
They're not evil, just another tool.
I don't (and won't) work for them again, but there were non-evil reasons for a dark pool.
Anonymous trading (dark pools) also prevents favoritism and collusion too. You're trading based on nothing but the price and public information about the company. So it's less gameable.
Coinbase is playing by the rules, that's why they are not shut down but got a small fine.
All other exchanges will probably shut down and their operators might even get jail time.
Oct 2011: Charlie Lee created Litecoin
Jul 2013: Charlie Lee went to work for Coinbase
Aug 2016: GDAX (now known as Coinbase Pro) added support for Litecoin
Aug-Sep 2016: An unnamed Coinbase employee manipulated Litecoin trading volume on GDAX
May 2017: Coinbase retail added support for Litecoin, which doubled in price immediately
Jun 2017: Charlie Lee left Coinbase (presumably having accomplished his goal of getting Litecoin listed)
Dec 2017: Charlie Lee sold all his Litecoin near the all-time high
"Everyone else is doing it" was never a valid excuse.
This statement suggests that at least one Coinbase employee was acting very deliberately. No accidents here. Why would an exchange need to trade from multiple accounts with multiple uncoordinated bots in the first place?
Haven't seen evidence of the big ones doing it - Bitmex, Binance, etc. FTX has good analysis on this.
Queue a single lot in the queue and observe that your fill is exactly when you expect. If they were generating fake trades it would be obvious since there would be trades that don't lead to you getting filled when you should be getting filled.
If instead they were actually wash trading on the real market (not just generating fake trades, which is the most common approach), that would be much harder to detect with any kind of forensic analysis of the data, you'd need some whistle-blower. However, doing this would be impossible in a liquid asset like BTCUSD or LTCUSD.
Nah, the opposite. It’s a small financial slap on the wrist, and in exchange they get to be absolved of their past sins and be declared squeaky clean. New competitors will need to be perfect from the get-go.
Seems a bit unfair on coinbase when pretty much everyone else is doing this stuff deliberately, whereas they are being punished for a seemingly accidental case of the same.