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Cross trading between crypto exchanges to be banned in South Korea

The move to ban cross trading is part of a raft of amendments to the Act on the Reporting and Use of Certain Financial Transaction Information.

Seoul, South Korean / Image by: Wikimedia Commons

Tue, 08 Jun 2021, 02:53 am UTC

The Financial Services Commission (FSC) is moving to halt the practice of cross trading between crypto exchanges in the country. According to the top regulatory body for South Korea’s financial market, the practice of cross trading, also known as bicycling, could introduce a “conflict of interest,” according to BitcoinExchangeGuide.com.

Cross trading is when an investor both buys and sells the same asset or security without recording the transaction on the order book of the crypto exchange. While the practice is permitted on some occasions, it is illegal in many jurisdictions, according to Cointelegraph.

The move to ban cross trading is part of a raft of amendments to the Act on the Reporting and Use of Certain Financial Transaction Information. However, many South Korean crypto exchange operators say that the ban could cause disruptions to their operations, according to local media outlet Newsis.

Banning the practice could restrict the flow of funds into their platform. South Korean exchanges engage in cross trade to help them convert fees changed in crypto to Korean won.

“In order to convert the cryptocurrency received as a fee into KRW, you have no choice but to sell the cryptocurrency at your place of business,” an industry official said.

A cross trading ban could force exchanges to offer zero-commission crypto trades. Exchange operators described the government’s recent move as aggressive to the nascent crypto industry.

An anonymous source revealed that crypto exchanges might be forced to create new businesses that will be focused on converting trading fees in crypto to fiat currency. However, such an option is deemed too costly as the country’s Anti-Money Laundering policies could mean that such a business model will be expensive to operate.

While many critics have pointed out the difficulties that would result from a cross trading ban, the FSC is holding firm to its resolve. The regulator explained that “large shareholders and business operators have more inside information than general investors, potentially making them a beneficiary in this practice.”

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