Transparency Questions Deepen as Major Crypto Exchanges Grapple With Internal Trading Operations

The cryptocurrency industry is confronting uncomfortable questions about how major platforms manage potential conflicts of interest between their exchange operations and proprietary trading teams. Recent scrutiny on one prominent Singapore-based exchange has opened a broader conversation about whether these platforms can fairly serve all market participants when they also operate their own trading desks.

How Trading Teams Create Structural Tensions

Unlike traditional financial markets, where exchanges typically serve as neutral venues and separate entities handle market-making or proprietary trading, several crypto platforms operate differently. These exchanges maintain internal trading teams that execute their own trades—sometimes on the same venues where they set prices and manage order books.

This arrangement raises a fundamental question: can an exchange truly remain neutral when it profits from internal trading operations? The setup creates inherent tensions between an exchange’s responsibility to all users and the profit motives of its own trading desk.

The Market-Making Question

Crypto exchanges argue that internal market-making teams serve a legitimate purpose—they provide liquidity and tighter bid-ask spreads that benefit retail and institutional traders. The companies contend that these teams operate under the same rules as third-party market makers and don’t receive preferential treatment.

However, critics argue that having access to real-time order book data gives internal teams an informational advantage that external market makers don’t enjoy. Even with formal parity claims, the structural positioning creates asymmetries that concern industry observers.

Regulatory Scrutiny Intensifies

Global regulators have signaled growing concern about conflicts of interest within crypto trading venues. Securities regulators have questioned the practice of exchanges simultaneously operating as broker-dealers, market makers, and proprietary traders—functions traditionally kept separate in regulated financial markets.

Gary Gensler, chair of the SEC, has been particularly vocal about criticizing the consolidation of these functions, noting that traditional exchanges do not operate hedge funds or proprietary trading desks. The distinction matters because it affects market fairness and the ability of regulators to oversee potential manipulation.

What Exchanges Are Claiming

When questioned about these practices, platforms have defended themselves by pointing to transparency disclosures and claims that all market participants receive equal treatment. Some have emphasized that retail trading and broker-model revenues actually dwarf profits from proprietary trading, suggesting internal trading is not a major business driver.

Companies operating in this space argue they maintain proper risk management by hedging positions across multiple venues and that their primary goal is market efficiency, not extracting value from other traders.

The Broader Industry Challenge

This issue extends beyond any single exchange. The crypto industry faces a critical juncture: either it develops clear regulatory frameworks that separate exchange operations from trading activities, or it risks continued government intervention that could reshape business models entirely.

For traders and institutional participants, the core concern remains unchanged—fairness and confidence that market prices reflect genuine supply and demand rather than insider positioning. Until the crypto sector addresses conflicts of interest within trading teams at the exchange level, questions about market integrity will persist and likely attract increasing regulatory attention.