Dispute Between CME, Crypto Exchanges Prompted CFTC Market Manipulation Probe: Report

Francisco Memoria
  • A dispute between the Chicago Mercantile Exchange and various cryptocurrency exchanges saw the CFTC open a market manipulation probe.
  • The dispute saw exchanges Kraken, Coinbase, Bitstamp, and ItBit refuse to hand over trading data through a third-party firm.

A report recently published by the Wall Street Journal claims that a dispute between the Chicago Mercantile Exchange (CME) and four cryptocurrencies exchanges prompted the Commodities Futures Trading Commission (CFTC) to probe crypto markets for potential manipulation.

Per the report, the probe saw government investigators demand the exchanges hand over trading data, to find out whether cryptocurrency prices are being manipulated or not. The investigation started after CME launched bitcoin futures contracts.

CME’s BTC futures contracts get their prices from four different cryptocurrency exchanges: Bitstamp, ItBit, Kraken, and Coinbase. After CME’s first contracts ended, in January, the company asked the crypto trading platforms to share trading data, and several declined to comply while “arguing the request was intrusive.”

The WSJ, citing people familiar with the matter, claims the exchanges ultimately complied after CME limited its request to a few hours of activity, instead of a full day. Reportedly, the request was also restricted to a few market participants.

CME initially attempted to get the data through a third-party London-based firm, which also runs a cryptocurrency trading platform. The other exchanges reportedly opposed to hand over so much sensitive data to a competitor.

This frustrated the CFTC, which regulates CME, as the latter didn’t have in place agreements that could compel the four exchanges to hand over trading data tied to its futures contracts. These agreements would detail what information needed to be shared, including traders’ identities and the time of trades. To get the data, the CFTC purportedly subpoenaed the exchanges.

The dispute saw the regulator launch an investigation into whether traders were colluding to manipulate bitcoin’s price. Its investigation is being coordinated with the US’ Department of Justice (DOJ), which as covered separately launched a criminal probe into potential market manipulation.

Commenting on the situation, CME spokeswoman Laurie Bischel stated:

“All participating exchanges are required to share information, including cooperation with inquiries and investigations.”

Laurie Bischel

While Bitstamp and Coinbase declined to comment and weren’t available to respond to WSJ’s requests respectively, Kraken CEO Jesse Powell stated the CFTC’s “newly declared oversight” saw spot exchanges question “the value and cost of their index participation.”

In an interview earlier this week, Powell stated:

“If there is any kind of attempted manipulation, whoever is doing it is taking a huge amount of risk for very little possible upside.”

Jesse Powell

To the CFTC, bitcoin is a commodity. As such, it acts as if it had the authority to look over potential fraud in the cryptocurrency’s markets, even if exchanges trading it aren’t subject to the regulations futures markets face.

Paxos’ CEO Charlie Cascarilla, whose firm runs ItBit, noted that we have “entered an unknown area where it is clear there is a desire for tightened oversight.” Activities that would be seen as market manipulation include spoofing and wash trading.