EDX Aims to Bring Transparency to Spot Crypto Markets

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Jamil Nazarali, managing director of spot crypto platform EDX Markets, said its separate listings for retail and institutional investors will be a differentiator as they allow for tighter pricing and better execution.

Nazarali was previously global head of business development at Citadel Securities, telling Markets Media that his years of experience in traditional finance and bringing new innovations are truly valuable.

In June this year, EDX Markets announced the launch of its digital asset marketplace and the completion of an investment round with new capital partners. Initial products to be traded on EDX include Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

A differentiator for EDX is that it will provide separate quotes for retail and institutional investors, and will also increase transparency by providing the full depth of the book, according to Nazarali.

Jamil Nazarali, EDX Markets

Our retail-only sale will bring participants the benefit of tighter pricing due to the involvement of multiple market makers, he added.

The company recently closed a new funding round with additional strategic investors including Miami International Holdings and market makers DV Crypto, GTS, GSR Markets LTD and HRT Technology. They join founding investors who include traditional financial firms such as Charles Schwab, Citadel Securities, Fidelity Digital Assets, Paradigm, Sequoia Capital and Virtu Financial.

Transactions will be cleared and settled on the blockchain for greater speed and efficiency at lower cost, eliminating the need for costly bilateral settlement. Similar to traditional finance, assets will be held in a network of independent digital custodians.

EDX does not need regulatory approval to operate a spot crypto exchange, but also plans to launch a clearing house, which will require regulatory approval. EDX Clearing will settle matched trades on the EDX marketplaces, allowing participants to benefit from increased price competition and reduced settlement risk. Nazarali argues that EDX Clearing will also be a differentiator by enhancing competition and creating operational efficiencies through a single settlement process.

MEMX, which operates a US stock exchange and plans to launch a US options exchange, will provide the technology to EDXM. Nazarali explained that Citadel Securities was an investor in MEMX and also served as chairman of MEMX’s board. He added: I knew the quality of MEMX’s technology and team, which was important to us.

Jonathan Kellner, MEMX

Jonathan Kellner, Managing Director of MEMX, said in a statement: This marks a new chapter for MEMX as we bring our scalable market technology to other asset classes and market operators.

There was a strong response to the June announcement according to Nazarali, who said it demonstrates latent demand for safe and compliant trading of digital assets through trusted intermediaries. EDX Markets is currently focused on institutional integration and Nazarali said that in 12 months he would like EDX to be considered a trusted intermediary in crypto markets for client flow execution.

The roadmap for expansion includes trading more tokens, launching derivative products and expanding internationally, Nazarali said.

Bitcoin ETFs

The launch of EDX comes as traditional art managers, such as BlackRock, have filed applications for spot bitcoin ETFs, which have already been denied approval by the U.S. Securities and Exchange Commission, although the SEC has approved listed bitcoin futures ETFs.

The price of bitcoin has moved significantly since the BlackRock bitcoin ETF filed in June.

Greg Cipolaro, global head of research at bitcoin firm NYDIG, said in a report that while a spot bitcoin ETF has never been accessible in the US, a significant amount of investment has already been made in existing structures such as the Grayscale Bitcoin Trust (GBTC), futures-based ETFs in the US, spot-based ETFs outside the US, and private funds.

Source: NICE

Our analysis shows that these products represent $28.8 billion in assets under management, including $27.6 billion invested in spot products, Cipolaro added.

However, Cipolaro continued that a cash ETF could bring benefits, including recognition of the BlackRock brand and iShares franchise, familiarity with methods of buying and selling through stockbrokers, and ease of position reporting, risk measurement and tax reporting, as well as better liquidity and reduced tracking errors and costs.

Greg Cipolaro, NYDIG

It’s been more than 10 years since the first registration statement was filed for a spot bitcoin ETF, and investors are once again excited about the prospects of one of the existing applications being approved, Cipolaro said. A spot ETF is still not guaranteed, so we encourage participants to weigh their decisions based on their likelihood of eventual approval. If the process for old Bitcoin ETFs is any guide, the road ahead is probably anything but straightforward.

On July 19, 2023, five bitcoin ETF applications from BlackRock, Fidelity, Invesco Galaxy, VanEck, and WisdomTree were published in the Federal Register, which sets a timeline for the SEC to review the proposals.

For example, the Nasdaq has filed a proposal to list and trade shares of the iShares Bitcoin Trust.

The filing stated: Having issued Bitcoin Futures approvals that conclude that the CME Bitcoin Futures market is a significant regulated market with respect to Bitcoin Futures, the only consistent outcome would be to approve Bitcoin Spot ETPs on the basis that the Bitcoin Futures market is also a significant regulated market with respect to the bitcoin spot market.

The Nasdaq also proposes to take additional steps to supplement its ability to obtain information that would be useful in detecting, investigating and deterring fraud and market manipulation in commodity-based trust stocks. On June 8, 2023, the exchange reached an agreement on terms with the listed crypto exchange Coinbase, to enter into a surveillance sharing agreement.

The agreement is expected to be a bilateral surveillance sharing agreement between Nasdaq and Coinbase intended to complement the exchange’s market surveillance program.

The Spot BTC SSA is expected to have the features of a monitoring sharing agreement between two ISG members, which would give the exchange additional access to data regarding Bitcoin spot transactions on Coinbase where the exchange deems necessary as part of its commodity-based trust equity monitoring program, the fling said. This means that the Exchange expects to receive market data for orders and trades from Coinbase, which it will use to monitor the trading of commodity-based trust stocks.

In addition, the exchange may request additional information from Coinbase regarding spot bitcoin trading activity if it determines that such information would be necessary to detect and investigate potential manipulation in the trading of commodity-based trust stocks.

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