Jamil Nazarali, the CEO of new institutional-focused crypto exchange EDX Markets, says the startup will learn from mistakes made by others who have tried to attract Wall Street to digital assets.
“I think a few things set us apart, there's been a number of firms that have tried to do pieces of this, but they're missing key components,” Nazarali told The Block, later adding that "there seemed to be a void in the marketplace for a true exchange."
EDX Markets launched in September, backed by Charles Schwab, Citadel Securities and Fidelity Digital Assets, among others. It comes amid an ongoing push by traditional financial institutions into digital assets, despite cryptocurrency prices sliding year-to-date. The exchange plans to enable safe and compliant trading of digital assets through trusted intermediaries.
EDX Markets is set to become the latest firm with institutional backing to jump into crypto, hoping to offer what crypto exchanges can't.
Backed by Charles Schwab, Fidelity Digital Assets and Citadel Securities, EDX Markets announced its launch on Sept. 13.
The firm’s CEO Jamil Nazarali sat down with The Block to discuss what's next for the exchange and what sets it apart from previous institutional plays.
The backers are going to drive the success
EDX Markets is just the latest institutional play in crypto. Before this Bakkt and Cboe's ErisX attempted to play similar roles, what makes EDX different?
Nazarali began by saying the firm is "starting with solving a lot of our client's headaches," alluding to properly vetting cryptocurrencies and having stringent anti-money laundering processes in place. He went on to say the backers are going to drive the success of this project, namely the ones providing liquidity.
People didn't trade on ErisX because there wasn't sufficient liquidity, according to Nazarali. "We started with two of the largest market makers in the world and we said, if we put this together, will you provide liquidity? And they said that they would."
Beyond this, the exchange also will offer periodic settlements, meaning trades on EDX Markets won't need to be pre-funded, which avoids the need to trade throughout the day. Instead, there will be multiple multilateral settlements across counterparties, Nazarali said. The exchange’s custodian will do a delivery versus payment (DVP) settlement once all the tokens are received, ensuring every counterparty is paid.
DVP is a type of settlement method, most common in securities trading, which guarantees the transfer of securities only happens after payment has been made.
Finally, the firm's partnership with a custodian will enable more firms to hold crypto on their balance sheets, the CEO said. Working with a custodian avoids issues for bank holding companies, which can't hold crypto on their balance sheet. "By partnering with a custodian that will do that, we hope it will bring more customers into the market," he said.
EDX Markets has yet to announce its custodian, however. With plans to launch trading towards the end of 2022, the announcement should be coming down the line soon.
From electronic trading to crypto
Nazarali brings plenty of trading experience and business development expertise into his new role with EDX Markets.
Before joining Citadel Securities, Nazarali spent a little over a decade working in electronic trading at Knight Capital Group, a market maker which handled about 7% of U.S. equity volumes at its peak. He eventually headed up trading there.
Following this, he joined Citadel Securities in 2011, initially running client market making there. After taking time off a few years ago, and with every intention of retiring, Nazarali realized he wasn’t ready to leave just yet. After a conversation with Citadel Securities CEO Peng Zhao, he came back as global head of business development.
In this role, he worked on client relations as well as the firm’s investments and acquisitions, which led him to be a founding investor of MEMX, a market operator founded in 2019. MEMX will also provide the technology infrastructure for EDX Markets.
Through his work as global head of business development, he then started to intersect with cryptocurrency. Nazarali said this is when the firm noticed there was a void in the marketplace for a true exchange.
“There's a lot of firms out there that we refer to as crypto exchanges, but they're very different from exchanges," he said.
EDX Markets plans to begin trading in the first quarter of 2023, with some trades potentially taking place in the fourth quarter of 2022.
Correction: This story has been updated to reflect that Jamil Nazarali worked at Citadel Securities, and Peng Zhao is CEO of Citadel Securities.
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