Prices of various cryptocurrencies are displayed on a screen at lounge of Upbit in southern Seoul, May 22. Yonhap

As the country's first law on virtual asset user protection is set to take effect Friday, cryptocurrency exchanges will be obligated to monitor unfair practices in the market. The exchanges are thus making all-out efforts to establish a monitoring system.

The Virtual Asset User Protection Act includes provisions for regulating unfair trading. It specifies penalties for unfair practices in the virtual asset market and prohibits using key insider information, manipulating market prices and making fraudulent, irregular transactions. It also includes restrictions on self-issued virtual asset trading.

As the new law stipulates virtual asset exchanges' obligation of constantly monitoring abnormal transactions, they should examine whether there is unfair trading while continuously monitoring the market. In case they detect any suspicious action, they should immediately report to financial authorities. With the enforcement of the law nearing, the virtual asset exchanges are in full swing preparing for the final stages.

Industry experts stress that the "order book information loading system" is at the core of monitoring. According to the Virtual Asset User Protection Act, exchanges should preserve trading records to monitor unfair trading. These records of virtual asset trading must include not only the name of the virtual asset and the date and quantity of the transaction but also the order book information at the time of order placement. They point out that the order book information is crucial for financial authorities to determine whether it was unfair trading.

Dunamu, which operates the country's largest cryptocurrency exchange Upbit, for instance, has reportedly established a team in charge ahead of the implementation of the user protection law, to preemptively prepare systems. They have developed a new unfair trading monitoring system, building on their existing monitoring systems, and began operation before the enactment of the law.

Upbit became the first virtual asset exchange in the country to load order book information and preemptively develop a monitoring system where the information can be compared with specific order and transaction situations. What is notable about Dunamu's monitoring system is that it is capable of integrated market analysis based on various data analysis tools that work simultaneously. It is designed to enable efficient communication with financial authorities, by systematically identifying and reporting suspicious transactions.

The monitoring system developed by Dunamu has been receiving positive responses within the industry as a good example. According to industry sources, Dunamu has shared its expertise in building market monitoring systems targeting Korean won exchanges and coin market exchanges at events organized by financial regulator earlier this year.

"With the enactment of the Virtual Asset User Protection Act, it will become even more crucial for exchanges to prove their compliance capabilities," a Dunamu official said.

"We will further improve our monitoring system of unfair trading to offer a safer environment for virtual asset investors," she added.