AML/CFT

Market making and wash trading look identical

Eight linked accounts produced a third of the volume in three related markets. That is either a liquidity operation working exactly as intended, or artificial volume, and public data cannot tell you which.

Read this first

  • The symmetric two-sided pattern, stable spreads and absence of any directional build-up are consistent with authorised market making.
  • On a platform whose matching and pricing run on exchange infrastructure that does not publish an order book, this cluster is plausibly the platform's own liquidity operation.
  • Nothing here asserts that any obligation was breached.

On a regulated platform, a cluster of eight accounts that behaved as one participant generated 49 self-trading events across a set of related markets on a single fixture. In the largest of those markets that activity was 34 per cent of all volume, and roughly 31 per cent in two adjacent markets on the same event, simultaneously.

Read one way, that is a serious anti-money-laundering finding: a third of a market's apparent depth was one participant trading with itself. Read another way, it is a market maker doing its job, quoting both sides so that members of the public have something to trade against.

The two readings are not distinguishable from the public record. They are distinguishable from the operator's own records, and only from those.

Signature

The quantitative fingerprint, so the pattern can be recognised again on any platform.

Cluster size
7 to 8 accounts, densely interlocked
Pairwise fills
3 to 16 per pair, most pairs connected
Self-trading events
34 to 50 per market in the scan window
Individual fill size
$5 to $250
Share of market volume
31 to 34 per cent, across three or more related markets at once
Market conditions
24 to 36 hours before close, two-sided crossing at complementary prices
Net position
No directional accumulation

This is why reconciliation exists as a separate capability rather than a refinement of detection. No amount of better rule-writing resolves it. The operator names the accounts that hold a market-making mandate, and the same measurement becomes either evidence that the mandate is being honoured, or a finding about accounts doing the same thing without one.

What this cannot show

  • Because only matched fills reach the settlement record on this kind of platform, order-book indicators had no visibility here at all. That is a standing disclosure, not a gap in this case.
  • Volume shares are measured over the observed window, not the market's full history.

Indicators involved

This note is de-identified. No platform, operator, market or account is named, and no fixture is identifiable.