SEC chief Gary Gensler says crypto exchanges are 'market making against their customers'

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  • SEC Chairman Gary Gensler worries that cryptocurrency exchanges don’t act in clients’ best interests.
  • “In fact, they’re trading against their customers often because they’re market-marking against their customers,” he told Bloomberg.
  • The SEC chief has previously warned that crypto exchanges are front-running clients’ trades.

Securities and Exchange Commission Chariman Gary Gensler said cryptocurrency exchanges are “commingling” services, which could go against their customers’ best interests.

The SEC chief warned the lack of separations between services like custody, market-making, and providing a trading platform leaves clients vulnerable.

“Crypto’s got a lot of those challenges — of platforms trading ahead of their customers,” Gensler told Bloomberg on Tuesday. “In fact, they’re trading against their customers often because they’re market-marking against their customers.”

Some tokens like Binance, USD Coin and Tether, which are all stablecoins tied to fiat currencies like the US dollar, are closely tied with exchanges, he added.

“I don’t think that’s a coincidence,” Gensler said. “Each one of the three big ones were founded by the trading platforms to facilitate trading on those platforms and potentially avoid AML and KYC,” or anti-money laundering and know-your-customer protections.

Coinbase, Binance and Bitfinex, which is connected to Tether, didn’t immediately respond to Insider’s requests for comment. Binance referred Bloomberg to a blog that says its stablecoin follows “strict guidelines and remaining transparent with the user community.”

Gensler has previously warned about crypto exchanges trading ahead of their customers’ orders, a practice known as front-running.

He told the Financial Services and General Government subcommittee in May 2021 that front-running is an issue on crypto exchanges and advocated for similar protections afforded to Nasdaq listings in traditional markets. 

“Without a cop on the beat and some rules of the road, then market participants can front-run your orders,” Gensler told the House subcommittee. 

Gensler previously has said blockchain technology possessed the tools to be a “catalyst for change.” But he’s been a vocal critic of crypto recently and has consistently maintained that cryptocurrencies fall under SEC guidance and thus should be regulated as such.