The UK foreign exchange, LMAX Exchange, is moving into the crypto trading market. It is looking to use its reputation as trading platform for banks and institutional investors to gain those types of clients in the crypto sector. LMAX trades about $4 trillion a year, has added Bitcoin, Ethereum, Litecoin, Ripple and Bitcoin Cash to it’s markets.
LMAX, which is regulated by the Financial Conduct Authority, is seeking to overtake crypto start-up exchanges by offering what it believes is a more secure market infrastructure for trading cryptocurrencies. They see this as a key factor in encouraging a more active crypto trading by their current users which include hedge funds, proprietary traders and wealthy individuals.
LMAX also expects this will eventually encourage banks, asset managers and sovereign wealth funds to enter the market.
David Mercer, chief executive of LMAX said:
“We believe the banks will come in the next 6-12 months and believe they will come on to venues like LMAX because we are a trusted entity. We are seeing [names] you would get on other exchanges.”
The capital markets consultancy, Tabb Group, reported last week that institutional investors have been inhibited from trading cryptocurrencies by a lack of regulatory clarity, data quality and adequate infrastructure.
Monica Summerville, head of European research at Tabb, said:
“[funds are] waiting for the right conditions to enter the market, and expected to begin happening this year.”
The top cryptocurrency exchanges are estimated to generate up to $3bn in daily trading fee revenues according to Tabb Group. However, it said the value of institutional investors trading large blocks of digital currency in the over-the-counter market could be at least twice that amount.
LMAX will trade cryptocurrencies on a transparent central order book, which is widely used in the foreign exchange, equities and futures markets. The group will also offer options to store assets. Some exchanges serving the cryptocurrency markets act more like brokers as they execute trades but also hold assets on behalf of customers. That has made them a high-profile target for hackers.
They have also sometimes struggled to process the high volumes of trades seen on wholesale markets. However, start-up exchanges have been bolstering their defences to reassure potential users in recent months.
The Winklevoss twins have recently hired Nasdaq to monitor its cryptocurrencies trading venue, Gemini, marking the US-based exchange operator’s first such surveillance deal in the sector.
Coinbase, also said it plans to upgrade its platform to allows high-frequency traders to match buy and sell orders more quickly. To that effect it will open an engineering office in Chicago, which is one of the world’s biggest hubs for electronic trading, and will launch a cryptocurrency custodian service.