Crypto futures are transforming market infrastructure

Quick Take:

Despite the current market volatility institutional demand for crypto has not lessened although historically, access has been difficult. Crypto futures are set to transform capital markets infrastructure and can offer frictionless, regulated and round-the-clock trading.

24/7 Trading

Bitcoin and other cryptocurrencies have grown in popularity in recent years with considerable potential to disrupt and transform the global financial system. Cryptocurrency trading on most crypto platforms is now 24 hours a day/7 days’ a week, but participants have struggled with market disruption during weekends on existing trading time.

Digital assets are now a permanent part of the capital markets with many institutional market participants, particularly banks, looking to benefit from the opportunities emerging in the cryptocurrency landscape. Crypto futures enable that market entry. 

What are the challenges for Institutions?

There are two key challenges currently holding institutions back from accessing crypto markets, including an inability to touch, trade, or take delivery of “physical” crypto currencies due to a lack of jurisdictional regulatory approval and subsequent internal compliance within financial institutions. 

There is also no credit mechanism or credit intermediation within the institutional markets for banks to offer their clients crypto trading credit. Currently, most crypto trading is cleared bilaterally, which is relatively inefficient from a capital use perspective, particularly compared with fiat currency trading.

Crypto futures solution

Regulated market access to crypto is available: institutions can trade a derivative on an FCA regulated Multilateral Trading Facility (MTF) and a Central Counterparty Clearing House (CCP) for frictionless market access to crypto – a market structure that banks are familiar with. 

It’s the same plumbing, just a different product: a crypto future. Adding market access for institutional participants in a regulated environment. 

LMAX Group (MTF), with SIX Group (CCP), is launching a standardised cryptocurrency futures product, settled in cash, in USD, completing the crypto offering by LMAX Group. The partnership leverages the expertise of two leading market players and is set to deliver a superior crypto offering, as the digital asset ecosystem continues to institutionalise and demand for robust trading infrastructure grows.

Open market access for institutions

Such open market access enables institutions to enter the cryptocurrency market in what will be a 24/7 offering allowing access to deep institutional liquidity, trusted technology, lower latency execution and regulated secure clearing connectivity on a continual basis.  

Perpetual trading is at the forefront of transitioning to complete open market access, ensuring the more efficient functioning of capital markets and increasing levels of global trade.

A thriving crypto ecosystem

Global technological advances since the start of COVID-19 have accelerated, with the financial services sector benefiting from the resulting rapid innovation.  

Digital assets are embedded in this evolution, driving fundamental industry change, and with the right framework in place can create a thriving crypto ecosystem.

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