LMAX Exchange to Launch Regulated Crypto Trading Platform for Institutional Investors

Omar Faridi
  • UK’s LMAX Exchange has traded over $10 trillion in fiat currency and now plans to use its experience to launch an FCA-regulated cryptocurrency exchange.
  • The trading platform plans to provide highly sought-after cryptocurrency custodian services for banks and hedge fund companies.

The LMAX Exchange, a multilateral trading firm based in London, reportedly received a number of requests from its clients who were interested in trading cryptocurrencies like Bitcoin, Ethereum, and Litecoin. In response, it decided to announce a new cryptocurrency exchange regulated by the UK’s Financial Conduct Authority (FCA), specifically developed for institutional investors.

The company’s new crypto exchange will be called LMAX Digital. Its trading services will reportedly be provided 24/7. LMAX Exchange’s CEO David Mercer stated:

"We are furthering the legitimisation of the crypto currency market by offering institutions a platform on which to acquire, trade and hold crypto currencies securely with high quality, deep liquidity."

David Mercer

The financial firm also plans on providing cryptocurrency custodian services for its clients. This is a highly sought-after service due to the challenges associated with safely and securely holding and transacting digital currencies.

Safe, Secure Trading Environment

The exchange’s press release states that it will provide “hot/warm/cold multi-signature wallets” to ensure safety and security. Additionally, LMAX Digital will feature a central limit order book (CLOB) and a rulebook that will be visible to all its users.

Per the company, this will allow for greater transparency and “streaming, firm institutional liquidity.” Buy and sell orders will also be “time-stamped in microseconds” in order to show users the most up-to-date data.

Notably, over $10 trillion of fiat currencies have been traded on the LMAX Exchange since its launch in 2010. According to the company’s press release, it currently provides FX trading services to institutional clients in over 100 countries. Per Mercer, the company’s experience in forex trading helped it develop LMAX Digital.

LMAX Exchange Group’s future plans include launching their cryptocurrency exchange services in Tokyo and New York. This, according to the company, will help meet its clients’ requirements throughout the world. Commenting on the rise of the cryptocurrency market, Mercer stated:

“Digital currencies are, without a doubt, coming of age. Exchanges will play a crucial role in bringing the major crypto currencies into wider circulation, helping them to become accepted into conventional funds which in turn will help to support a normalisation of value.”

David Mercer

Institutional investors have not yet made any substantial investments in the cryptocurrency market. Recently, BitMEX CEO Arthur Hayes and Coinbase VP Adam White recently revealed that their companies have begun to develop products and services for them, as they’re expecting “billions of dollars” worth of investments.

Grayscale's Ethereum Trust Product Is Now Trading on OTC Markets

Digital Currency Group (DCG) subsidiary Grayscale Investments has introduced an Ether (ETH)-based security product called Grayscale Ethereum Trust (ETHE) that's now tradable through over-the-counter (OTC) markets. Grayscale’s blog post (published on June 20, 2019) also notes that ETHE is “an open-ended trust that holds Ethereum.”

“Open-Ended Trust” for Holding Ether

This means that investors looking to gain exposure to Ether need not hold the underlying cryptoasset itself. This, as Grayscale’s ETHE product is the “first U.S.-based publicly quoted security solely invested in and deriving value from the price” of Ethereum’s native token, ETH.

Gaining Exposure to Opportunities that Aren’t Correlated to Traditional Assets

Commenting on the launch of the investment manager’s latest product, Matt Beck, the Director of Investments and Research at Grayscale, remarked:

Cryptocurrencies — such as Ethereum — offer exposure to a unique set of market opportunities and risks that are uncorrelated to traditional assets. As a result, they can further diversify modern portfolios, enhancing returns per unit of risk (when positions are sized appropriately and maintained over long investment horizons).

In May 2019, Grayscale had reportedly obtained approval to list ETH in OTC markets from the Financial Industry Regulatory Authority (FINRA), a non-profit regulatory agency licensed by the US Congress.

Morgan Creek CEO Confirms Cryptoassets Not Correlated to Traditional Investments

Notably, Beck’s views regarding digital asset investments are similar to those expressed by Mark Yusko, the CEO at Morgan Creek Capital, who in May 2019 said that investors should now seriously consider adding Bitcoin (BTC) to their investment portfolio. This, as the experienced Wall Street investor believe bitcoin has a very low correlation with the performance of traditional assets - thus having (statistically) high diversification.

Grayscale Holding 203,000 Bitcoins

Grayscale’s total assets under management are presently valued at over $2.3 billion. This makes it one of the largest digital cryptoasset investment firms. In early December 2018, the management at Grayscale had revealed that it is holding over 203,000 BTC (appr. $2.25 billion at current prices) in its reserves.

A report from Longhash had confirmed (at that time) that Grayscale was the largest institutional holder of BTC - with the company controlling around 1% of bitcoin’s circulating supply of approximately 17.7 million.