Bitcoin options exchange LedgerX is enlisting the services of London-based Ancoa, a market surveillance provider for exchanges, to help detect price manipulation.
LedgerX is aiming to become the first approved facility where physically-settled options on bitcoin can be listed and cleared. The US Commodity Futures Trading Commission (CFTC) recently wrapped up its extended comment period on their proposal.
The use of Ancoa’s contextual analytics for market and trade surveillance may be beneficial for LedgerX’s bid. Some commenters on its proposal charged that the firm has not provided adequate assurance that prices will not be manipulated. Such concern is more pronounced in derivative trading, where manipulators can make unfair gains if they have any way of influencing spot prices. Traders may also have more levers for manipulation when playing in two separate markets, which may also make their activities harder to detect. Furthermore, their potential gains are magnified in derivative products.
Ancoa markets its surveillance platform to exchanges, regulators and institutions. One of its clients is Croatia’s Zagreb Stock Exchange. LedgerX will use the service to identify manipulative behavior on its own exchange, on other derivative venues and in bitcoin spot markets.
Speaking to DC Magnates, Ancoa founder and Executive Director, Stefan Hendrickx, expanded upon what type of manipulative behaviors will be monitored:
– Front-running (trading ahead of a customer)
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– Fictitious transactions – placing an order with no intention of executing it
– Spoofing – placing an order (and giving the impression of high demand) and cancelling it seconds later
– Making fictitious or trifling bids or offers; offering to enter into an exchange contract at a price variation less than the minimum price fluctuation permitted for such exchange contract under the defined rules; or knowingly making any bid or offer for the purpose of making a market price that does not reflect the true state of the market
– Disregarding the orderly execution of transactions during the closing period
He added that a robust surveillance system overlays real-time and historical market data, as well as electronic communications including social media, email and messenger systems.
LedgerX records all phone calls and instant messaging made with market participants. Ancoa is able to import both audio and text records, integrating them with market and trading data, making for a more effective surveillance of the market.