Australia Targets Crypto Exchanges Trading Against Their Users

• ASIC proposes restricting proprietary trading by order-matching crypto platforms and their affiliated companies.
• Certain disclosed brokerage and principal-trading arrangements would remain permitted under the draft.
• Three alternative capital models could impose significantly different financial requirements on Australian crypto operators.

Australia is considering new restrictions on cryptocurrency exchanges trading against their own customers, as regulators prepare to bring digital asset platforms into the country’s financial services licensing framework.

The Australian Securities and Investments Commission (ASIC) published Consultation Paper 392 on October 15, proposing standards covering trading conduct, custody arrangements and financial resources.

One proposal would prevent exchanges that match customer orders from trading for their own account through those platforms. The restriction would also extend to certain affiliated companies.

However, the regulator is not seeking to eliminate every transaction in which an exchange becomes a customer’s counterparty. Its approach depends on how orders are executed and whether the business model creates conflicts of interest.

Why ASIC Wants to Separate Trading From Order Matching

Many cryptocurrency businesses combine several functions within the same corporate group.

An exchange may operate an order book, provide custody, route customer transactions and maintain relationships with market makers supplying liquidity.

These activities can create conflicts when the platform operator or an affiliated company also trades for its own benefit.

Consider an exchange that matches customer orders while a related trading firm participates in the same order book. The arrangement raises questions about whether the affiliated trader receives preferential treatment or whether the operator’s commercial interests influence execution.

Under proposal C3.3, order-matching digital asset platforms would generally be prohibited from trading as principal on their own platforms or those operated by related companies.

Related companies would also be restricted from trading as principal through the operator’s platform.

The exceptions are important.

ASIC’s proposal C3.4 would preserve specified arrangements involving tied brokers, tied dealers, agents and platforms that act as principal counterparty to customer transactions.

For these models, disclosure and customer consent form part of the regulatory approach.

The distinction is between operating a venue that brings buyers and sellers together and conducting a disclosed transaction in which the business itself takes the opposite side.

Token Listings and Market Makers Face Closer Oversight

ASIC is also targeting commercial arrangements that could influence which cryptocurrencies receive favorable treatment.

The consultation proposes several obligations beyond the proprietary-trading restriction:

• Token listings: Platforms would be prohibited from accepting benefits to favor particular digital tokens in admission, trading or marketing.
• Liquidity providers: Exchanges would need to monitor third-party market makers and publicly identify providers operating under liquidity support arrangements.
• Trading transparency: Order-book platforms would have to publish specified pre-trade information in real time and without charge.

These requirements could affect exchanges that depend on affiliated liquidity providers or commercial relationships with token issuers.

They would not automatically prohibit independent market makers. Instead, operators would face clearer responsibilities for managing those relationships and responding to abnormal trading conditions.

For customers, the practical benefit would be greater visibility into who provides liquidity and how the platform handles trading interests that may conflict.

Three Capital Models Could Produce Different Costs

The proposed trading restrictions are only one part of ASIC’s consultation.

The regulator is also considering three alternative net tangible asset (NTA) models for digital asset platform and tokenised custody platform operators.

NTA represents financial resources held by the licensed business. ASIC intends the requirements to support operating costs and an orderly wind-down if an operator fails.

The alternatives differ considerably for businesses that do not qualify for a third-party custody concession.

The third model is particularly relevant for smaller operators because it combines a lower base requirement with additional amounts linked to their activities.

For example, a platform trading as principal with customers would face a proposed A$1 million activity-based addition under Model 3.

The regulator has not selected a preferred model.

All three alternatives also provide a potentially lower requirement for operators meeting strict third-party custody conditions. Those arrangements would require more than simply outsourcing asset storage, including assurances about the custodian’s own financial resources.

The commercial consequences could be substantial. Smaller exchanges may need to reconsider whether maintaining custody internally is economical, while larger operators would have to evaluate the capital implications of their trading structures.

Custody Rules Extend Beyond Wallet Security

ASIC’s proposals also address how customer assets are legally held and recorded.

The regulator is considering requirements for asset segregation, reconciliation and oversight of external custodians, including providers located overseas.

Operators would also be expected to maintain records of wallet structures and addresses, with proposed quarterly reporting to ASIC.

The consultation does not seek private keys or seed phrases.

This distinction reflects a problem that cannot be solved through wallet security alone: controlling a cryptocurrency wallet does not necessarily establish which customer legally owns the assets held within it.

For exchanges using pooled wallets or offshore custody providers, accurate internal records and enforceable customer rights would therefore remain essential.

The Licensing Deadline Creates a Compliance Decision

Australia’s Corporations Amendment (Digital Assets Framework) Act 2026 is scheduled to commence on April 8, 2027.

Existing businesses falling within the new regime will have until October 7, 2027, to submit an Australian financial services license application or variation. Eligible operators that apply within the transition window may continue operating while ASIC assesses their applications.

Before then, the regulator must determine the final form of its proposed standards.

Consultation responses are due by November 27, with final instruments and guidance expected in March 2027.

For exchanges, the most consequential decision may concern business structure rather than licensing paperwork alone.

Operators combining customer order matching, affiliated market making and proprietary trading will need to assess whether those functions can remain together under the final rules.

The outcome will determine how much separation Australia requires between the businesses running crypto trading venues and those taking positions within them.