Managing Director of LMAX Digital on Increasing Institutional Interest in Crypto

by Ilan Hazan
7 ways to make with crypto

Managing Director of LMAX Digital on Increasing Institutional Interest in Crypto

On Wednesday (March 30), Jenna Wright, Managing Director at LMAX Digital, was interviewed by James Harris, Commercial Director at leading digital asset market data provider CryptoCompare, at this year’s CryptoCompare Digital Asset Summit.

LMAX Group is “a global financial technology company and the leading independent operator of multiple institutional execution venues for FX and crypto currency trading.” With “offices in 9 countries and a global client base, the Group builds and runs its own high performance, ultra-low latency exchange infrastructure, which includes matching engines in London, New York and Tokyo. The LMAX Group portfolio of businesses includes LMAX Exchange, LMAX Global, and LMAX Digital.”

LMAX Digital, which is “regulated by the Gibraltar Financial Services Commission (GFSC) as a DLT provider for execution and custody services”, is an institutional cryptocurrency exchange that is operated by LMAX Group. Using LMAX Group’s “proven, robust technology and liquidity relationships,” LMAX Digital “delivers a market-leading solution for physical trading and custodial services for the most liquid crypto currencies – such as BTC (Bitcoin), ETH (Ethereum), LTC (Litecoin), BCH (Bitcoin Cash), XRP (Ripple) and SOL (Solana).”

When asked for some background information on LMAX Group, Wright said:

LMAX Group has operated foreign exchange venues around the globe in London, New York, and Tokyo since 2010. So, we’ve been in capital markets for a while now, and we trade around 25 billion dollars a day in FX. And in 2017, we had a bunch of existing non-bank institutional type clients ask us if we could look at this crypto piece.

So, they were market-making on a ton of retail crypto exchanges, but there really wasn’t really a venue that they would consider institutional-grade, where they would be able to offset some of their risk, perhaps risk-reduce, and really trade with other like-minded participants. So could we take what we were doing in foreign exchange and replicate that in the crypto world? So, when we had a look at it, actually for us, Bitcoin dollar was very similar to Euro dollar, right?

Didn’t take much more than that. It was essentially the same software, just new hardware. So, it was just a fifth exchange, very trivial for us, given that we’ve done it four times before. And we thought we’d give it a go. The bit that took a bit longer was the concept of custody. We had heavily relied on banks to do that for us in the past, on the fiat side, and then the regulatory piece.

So, we were heavily regulated across the globe for all things FX, and we wanted to replicate that on the crypto side. So, on the custody piece, it was very much a hot wallet situation in 2017 and given that we were looking to — in the same way that we do for FX — only target institutional type clients, hot wallets were not going to work for us. It would be holding tens and hundreds of millions, perhaps billions, very early on, and so we decided to build it in-house. We’re a technology firm at heart, and we built a proprietary custodian. So, we now run the two. We operate exchanges for foreign exchange and institutional crypto spot and the custodian too.

With regard to their plans for this year, Wright mentioned the upcoming launch of their crypto futures product. As you may be aware of, on March 17, LMAX Group announced via a press release that it had partnered with SIX Swiss Exchange to launch “cash-settled, centrally cleared crypto-asset futures.” This launch is expected in Q3 2022, subject to regulatory approval, and will “initially include centrally cleared USD settled Bitcoin and Ethereum futures, trading 23 hours, five days a week, with the full product roll out to be extended to 24/7 trading.”

One of the most interesting parts of the interview was when Harris asked Wright how her clients about the current macro environment and in particular if she has noticed any change in their level of interested in crypto.

Wright replied:

2022 feels a little bit like the year of consolidations. So far, very different to how our last year panned out in terms of training activity — which was almost on sustainable, a little wild, in the first half of last year… I think we’ve briefly touched on it. If we go back to 2018, when we took our crypto offering to 35 banks that trade FX with us, they kind of said ‘congratulations. well done, see you later, tell us how you get on’.

And then you fast forward to now, and everyone’s knocking on the door. They want to take you for lunch. They want to understand what’s going on because they have strategies… They are keen right?

The regulatory piece holds them back to a certain degree, but there’s other ways of doing it. They are investing in blockchain technology companies… They are looking at perhaps being a custodian. Do they hold it? Do they invest in it? Do they trade it? Do they clear it?

Every bank has a different angle for my conversations, but the reality is they’re engaged, and they’re taking my market data, and I couldn’t get them to do that in 2018… and now a third of those 35 are taking the market data. So, they’re prepping… So, I think we’re in the best position we’ve ever been.

The interview with Jenna Wright, Managing Director of LMAX Digital, starts at the 34:28 mark of the above video and ends at the 55:40 mark.

Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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