Jamil Nazarali, chief executive of spot crypto venue EDX Markets, said its separate quotes for retail and institutional investors will be a differentiator as it enables tighter prices and better execution.

Nazarali was formerly global head of business development at Citadel Securities, told Markets Media his years of experience in traditional finance and bringing in new innovations is really valuable.

In June this year EDX Markets announced the launch of its digital asset market and the completion of an investment round with new equity partners.The initial products that will be traded on EDX include Bitcoin, Ethereum, Litecoin  and Bitcoin Cash.

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

“Our retail-only will bring participants the benefit of tighter prices 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.

Trades will be netted and settled on the blockchain for greater speed and efficiency at lower cost, eliminating the need for expensive 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 has plans to launch a clearinghouse, which will need regulatory authorisation. EDX Clearing will settle trades matched on EDX Markets allowing participants to benefit from enhanced price competition and reduced settlement risk. Nazarali argues that EDX Clearing will also be a differentiator by enhancing competition and creating operational efficiency through a single settlement process.

MEMX, which operates a US equities exchange and is planning to launch a US options exchange, will be providing technology to EDXM. Nazarali explained that Citadel Securities was an investor in MEMX and he was also chair of the board of directors of MEMX. He added: “I knew the quality of the technology and team at MEMX, which was important to us.”

Jonathan Kellner, chief executive 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 has been a strong response to the announcement in June according to Nazarali, who said this demonstrates latent demand for safe and compliant trading of digital assets through trusted intermediaries. EDX Markets is currently focussed on onboarding institutions and Nazarali said that in 12 months time he would like EDX to be seen as a trusted intermediary in crypto markets for execution of client flow.

“The roadmap for expansion includes trading more tokens, launching derivatives and international expansion,” said Nazarali.

Bitcoin ETFs

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

The price of bitcoin has moved substantially since the BlackRock bitcoin ETF filing in June.

Greg Cipolaro, global head of research at bitcoin company NYDIG, said in a report that although 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 of the US, and private funds.

“Our analysis shows that these products account for $28.8bn in assets under management, with $27.6bn invested in spot products,” Cipolaro added.

However, Cipolaro continued that a  spot ETF could bring benefits including the brand recognition of BlackRock and the iShares franchise, familiarity with purchase and sale methods through securities brokers, and simplicity of position reporting, risk measurement, and tax reporting, as well as better liquidity and  lower tracking error and costs.

“It has been over 10 years since the first registration statement was filed for a spot bitcoin ETF, and investors are excited once again about the prospects for one of the existing applications to get approved,” said Cipolaro. “A spot ETF is still not guaranteed and so we encourage participants to weight their decisions based on their probabilities of ultimate approval. If the process for past bitcoin ETFs is any guide, the road ahead is likely anything than 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, Nasdaq filed a proposal to list and trade shares of the iShares Bitcoin Trust.

The filing said: “After issuing the Bitcoin Futures Approvals which conclude the CME Bitcoin Futures market is a regulated market of significant size as it relates to Bitcoin Futures, the only consistent outcome would be approving Spot Bitcoin ETPs on the basis that the Bitcoin Futures market is also a regulated market of significant size as it relates to the bitcoin spot market.”

Nasdaq is also proposing to take additional steps to supplement its ability to obtain information that would be helpful in detecting, investigating, and deterring fraud and market manipulation in the Commodity-Based Trust Shares. On 8 June 2023, the exchange reached an agreement on terms with 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 that is intended to supplement the Exchange’s market surveillance program.

“The Spot BTC SSA is expected to have the hallmarks of a surveillance-sharing agreement between two members of the ISG, which would give the Exchange supplemental access to data regarding spot Bitcoin trades on Coinbase where the Exchange determines it is necessary as part of its surveillance program for the Commodity-Based Trust Shares,” said the fling. “This means that the Exchange expects to receive market data for orders and trades from Coinbase, which it will utilize in surveillance of the trading of Commodity-Based Trust Shares.”

In addition, the exchange can request further information from Coinbase related to spot bitcoin trading activity if it determines that such information would be necessary to detect and investigate potential manipulation in the trading of the Commodity-Based Trust Shares.