Market Anomaly: Cross-Exchange Wash

• Operation "Token Mirrors" (USA, 2024–2025): U.S. authorities charged 18 individuals/companies (incl. Gotbit, CLS Global, ZM Quant, MyTrade) for multi-exchange wash-bot activity; named venues included BitMart, LBank, XT.com. Guilty pleas/convictions followed.
• SEC civil suits (Oct 2024): Civil actions against promoters and "market-maker-as-a-service" providers for generating artificial volume across multiple exchanges.
• Industry / research: Coin Metrics (Trusted Exchange Framework) and Kaiko identify cross-market correlations, lead/lag, and round-trip rates as robust indicators.

Literature links Benford deviations, rounding clusters and round-trip series to elevated wash-trading probability.

1. Actors & motive: Token teams or contracted "market makers" produce mirror fills on ≥ 2 CEXs.
2. Mechanic: Bots buy on exchange A and sell on exchange B (and vice versa) - lots of tape, no net position change.
3. Goals: Aggregator volume & listing visibility; apparent price-discovery lead/lag.
4. Signature: Synchronous volume pulses, identical sizes, round-trips, Benford deviations.

• Sync pulses: Very high volume correlation (seconds bins), event-aligned, lead/lag ≈ 0.
• Mirror fills: Recurring identical quantities (±2–5%) across multiple venues on ms–s cadence.
• "Lots of noise, no trend": High tape density with minimal price progression / VWAP drift.
• Round-trip clustering: Purchase→sell→purchase permutations statistically dominate.

• Fragmentation & ranking incentives: volume-based visibility encourages fake activity.
• High API rates & services: "MM-as-a-Service" and bots make multi-venue slicing trivial.
• Limited cross-venue transparency: no CAT equivalent; public feeds usually lack counterparty IDs / L3 history across venues.

FINRA 5210 prohibits publishing non-bona-fide trades; SEC Rule 613 (CAT) links order lifecycles across US venues - exactly what makes cross-exchange wash much harder.

• Market quality: Artificial multi-venue volume distorts price discovery & liquidity scores.
• MiCA & transition: Applicable since 30.12.2024; transitional arrangements until 01.07.2026 possible. Expectation: effective cross-exchange surveillance against order-/behavioural deception.

Adaptive per symbol & venue-pair; 30-day baseline for same time of day. Required: at least L2 on ≥ 2 exchanges. Ideal: L3 events.

E3 (high) – "Synchronized mirroring across venues"

• Volume correlation (1-sec bins) > 0.90 between two exchanges, and
• ≥ 8 identical / near-identical fills (± ≤ 5%) within ≤ 3 min on both venues, and
• Lead/Lag |≤ 100 ms (or ≤ 1 s if clocks uncertain), and
• Benford deviation per venue > p99 of baseline.

E2 (medium)

• Volume correlation > 0.75 (5-sec bins) or repeated rounding clusters (top-N sizes match across venues), and
• VWAP drift in cluster < 10 bp despite high activity.

E1 (low)

• Concentrations of round-trips + preliminary Benford deviation > p97 or uniform size-series without news flow.

Interpretation: combine correlation + lead/lag + size statistics; avoid flagging on single metrics to reduce overfitting.

• Separate arb/hedge: Genuine arbitrage shows price convergence & orderbook erosion; wash = "lots of tape, little price movement".
• Windows/seasonality: Funding turns, index prints can cause legitimate synchronicity - check context.
• Extra data: If available, on-/off-chain flows from issuers/MMs help detect account linkages.
• Cross-venue check: Broad market move ≠ isolated local pulses; the latter are more suspicious.

• For traders: Judge aggregated depth realistically, time entries/exits more robustly, reduce slippage.
• For operators/compliance: Documented multi-venue signatures (corr / lead-lag / size patterns) support reviews & STOR filings - aligned with MiCA expectations.

• U.S. DOJ (USAO-MA), 9 Oct 2024: "Operation Token Mirrors" – wash-bots across exchanges; named venues & actors.
• U.S. DOJ / IRS-CI (2025): follow-up notices on convictions/penalties (e.g., CLS Global).
• SEC, 9 Oct 2024: civil actions vs. "market-maker-as-a-service" / promoters for artificial volume.
• Cong, Li, Tang, Yang (NBER 30783, 2022): "Crypto Wash Trading" – Benford, rounding patterns, round-trips; exchange features.
• Coin Metrics: Trusted Exchange Framework 2.1 & "State of the Network" – cross-market metrics (corr/lead-lag/sequences).
• Kaiko Research (2024): "Data Reveals Wash Trading on Crypto Markets" – empirical cases.
• FINRA: Rule 5210; Notice 14-28 (self-trades).
• SEC / CAT: Rule 613 – Consolidated Audit Trail (cross-market order audit trail).
• ESMA (17.12.2024): MiCA transitional measures; AMF timetable - transition until 01.07.2026 possible.