South Korea to Ban Crypto Exchanges from Cross Trading


South Korea’s FSC is planning to ban an illegal practice of cross trading on cryptocurrency exchanges in the country.

June 7, 2021 | AtoZ Markets – The Financial Services Commission of South Korea (FSC) will impose a ban on so-called cross-trading on cryptocurrency exchanges, according to a report by local media outlet Newsis.

Cross trading which is is prohibited on most of the world’s leading stock exchanges, is a practice where a broker offsets buy and sell orders without recording the orders on the exchange where the trade is taking place.

Why is South Korea banning crypto exchanges from cross trading?

In FSC’s view, offsetting counter orders is a “conflict of interest” and creates risks of price manipulation, as exchanges have internal information about customer orders.

The decision was included in the list of amendments to the Law on the report and use of certain information on financial transactions.

According to local media outlets, the ban will limit the flow of funds to cryptocurrency exchanges that have faced pressure from previous regulatory measures. This will also affect the operators themselves, who convert commissions received in cryptocurrency into Korean won.

In practice, the latter solution may mean eliminating trade fee income. Anonymous sources of the publication reported that a way out of this situation could be the creation of a new business to convert commissions into fiat. Due to strict AML standards, this event will not come cheap, the interlocutors suggested.

Difficulties for bitcoin exchanges will also arise with taxes. They are paid only in won, while operators charge commissions in digital assets. This may entail the need to obtain a loan in fiat with collateral in the form of cryptocurrency.

The FSC offered cryptocurrency exchanges to solve the problem on their own.

Read also: South Korea FSC Obliges Its Employees to Report Crypto Investments

The amendments will oblige operators to keep at least 70% of client funds in cold wallets. The regulator believes that this will mitigate the effects of potential hacks. FSC plans to investigate previous attacks in order to discover the potential involvement of insiders.

Recall that in the first quarter of 2021, South Korean banks processed 64.2 trillion won ($57.9 billion) transactions on verified accounts associated with cryptocurrency exchanges, which exceeded the cumulative figure of 2020.

In June, it was announced that as from 2023, South Korean residents must disclose data on accounts on foreign bitcoin exchanges.

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