Two prominent online places where people trade cryptocurrencies, Binance and OKX, have caused a stir with their recent decision to make rules stricter for brokerage firms. These firms group clients to get lower trading fees. The trading places say they’re doing this to be open and fair. But, some traders are worried that this could slow down the efficiency of the market.

Why Crypto Regulations Worry Prime Brokers?

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• Binance and OKX, big online trading platforms, are setting stricter rules for prime brokers, aiming to be more transparent and fair.
• Traders are worried that these more rigid rules might make the market less efficient.
• Brendan Callan, the boss of Tradu, warns that trading platforms’ move towards “liquidity capture” could lower the quality of liquidity.

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Binance was the first to implement this change by stopping prime brokers from using its fee system to reduce costs and offer discounts to clients. They made these changes to their Link Plus interface last month. Now, OKX seems to be following suit, with plans to limit access to its special fee program.

The trading places say these steps are to ensure that all users play fair and that they can see who the prime brokers’ clients are. But some people think this is a step backward, especially in terms of making markets work better.

Unlike regular money markets, the crypto markets were first made with regular customers in mind. In big markets, prime brokers offer institutions a simple bank account. Behind this, helpers safely keep cash and assets and quickly trade across different platforms.

But, in the crypto world, the blockchain allows instant settlement. So, large participants with many trades simultaneously must pay for all their positions upfront across several big, vertically integrated exchanges. Prime brokers help solve this issue with their lending and financing. George Zarya, the boss of Bequant, a firm that allows crypto clients, explains this.

However, by stopping brokerages from getting lower fees, exchanges could accidentally, or on purpose, make the crypto market less attractive. “Exchanges have decided that helpers are not necessary. They can provide loans as well, right?” said Zarya. But he adds that they can only provide loans for the positions based on their exchange. This could lead to markets that use capital less efficiently.

Brendan Callan, the boss of the new crypto trading place Tradu, agrees with this, saying that big crypto exchanges are moving towards “liquidity capture,” creating a model that increases trading volume, but possibly at a cost to the quality of liquidity.

Callan suggests that crypto exchanges’ approach leads to differences in bid prices on highly liquid pairs like BTC/USDT, which would seem “bonkers” to a regular money trader. “They want you to have to get in and out of positions on their exchange because it boosts their volume, but it’s at a cost to the quality of their liquidity,” Callan adds.

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