Lynn Martin, president of NYSE Group and chair, ICE fixed income & data services, said the exchange will continue to try to find opportunities to bring traditional structures coupled with crypto assets to the fore as it is aiming to launch cash-settled bitcoin index options.

Martin spoke at the Consensus 2024 conference in Austin, Texas on a panel about the convergence of crypto and traditional finance on 29 May.

On that day the New York Stock Exchange, part of Intercontinental Exchange, announced it wants to launch cash-settled index options tracking the CoinDesk Bitcoin Price Index, which it said is the longest-operating spot bitcoin index. Last year ICE Futures Singapore collaborated with CoinDesk Indices to update its bitcoin futures contracts.

Martin said the NYSE is working towards getting regulatory approval to launch option contracts on Coindesk’s Bitcoin index. She said: “We are incredibly excited about it.”

Andy Baehr, head of product at CoinDesk Indices, said in a statement: “XBX has delivered a trusted price of bitcoin to millions of investors, market participants, and bitcoin enthusiasts since 2014. Collaborating with the NYSE to launch XBX index options opens a new chapter in digital assets, placing important and familiar risk-management tools in the hands of U.S. and global investors.”

Tom Farley, chief executive of regulated digital asset exchange Bullish, which is also the parent of CoinDesk Indices, also spoke on the panel at Martin and Farley spoke at Consensus 2024.

Farley said the idea for the contract started when David LaValle, global head of ETFs at digital currency asset manager Grayscale Investments, told him that the industry needs a cash-settled bitcoin option, which would be novel and differentiated.

“In the equity options world, cash-settled options have a long history of being a very interesting product to customers,” Farley added. “Cash-settled S&P options may be the most well known options product.”

If the options contracts are approved and traded, Farley said this could result in more overall liquidity for bitcoin, especially in combination with new types of bitcoin ETFs that he expects to see in the near future.

Martin added that the options will be an additional risk management tool, which is appealing for both new entrants and more established institutional names who are becoming involved in bitcoin ETFs.

“This is another evolution of how institutional and retail investors can manage risk in their portfolio, which I think is a good thing,” she said.

The NYSE is proud to announce our collaboration with @CoinDesk Indices to launch cash-settled index options tracking the CoinDesk Bitcoin Price Index (XBX). NYSE President @LynnMartin and @ThomasFarley, CEO of @Bullish discussed the announcement at Consensus 2024.

— NYSE 🏛 (@NYSE) May 29, 2024

Accelerated settlement

On 28 May 2024 the US securities market moved from settling two days after a trade, T+2, to the day following the trade, T+1. In contrast, digital assets on-chain can be settled instantaneously.

Martin explained that it took the industry one year to move from T+2 to T+1, while it took several years to shift from T+3 to T+2.

The technology that underpins crypto, specifically the blockchain, is great technology,” she added. “It is something that the industry will continue to look at to see how it can be used to make settlement more efficient and transparent.”

She is optimistic that the industry will eventually move towards more real-time settlement as it updates archaic technology, much of which was built in the 1980s. However, the traditional finance ecosystem needs to digest T+1 before moving to the next innovation.

“I continue to be optimistic about the use of blockchain technology to make processes more efficient,” Martin said.

Farley, former president of the NYSE, agreed that digital assets have the benefit of atomic settlement but highlighted that other parts of the ecosystem are still far behind the speed of connectivity of traditional market centres. For example, trades on crypto exchanges can take seconds, or at best milliseconds, while equity trading is measured in microseconds.

Martin highlighted that the NYSE’s average response time to fill a trade is 30 microseconds. As a result, the exchange processed three quarters of a trillion incoming order messages each day.

In addition, although instantaneous settlement means there are no failed trades, the process is far more capital intensive because transactions have to be pre-funded. In addition, crypto venues have more outages than traditional exchanges.

“A lot of crypto venues, ourselves included, are almost unwinding real time settlement and offering things like deferred settlement because that enables much more liquidity and more active trading,” Farley said.

He continued that the current equities market is largely efficient, so blockchain offers more benefit in other asset classes such as fixed income.

Martin said: “In fixed income, for example US municipal bond markets, there is no liquidity. That is probably a better market to start to employ the  technology that underpins the crypto industry, as it has an inefficient market structure.”

Bitcoin, and other digital assets, are available for trading 24 hours a day, seven days a week. NYSE has commissioned a survey 24/7 trading and Martin said the exchange is still consulting with members.

“Most importantly, we are looking at the various aspects of the ecosystem and the clearing piece in particular, to see how it would handle the 24-hour aspect, whether it is five or seven days a week,” she added. “There are a variety of conversations happening.”

Martin was also asked if NYSE would launch a spot crypto trading exchange, and she said this could be an opportunity if there is clear regulatory guidance.

NEW: 🇺🇸 Blackrock's #Bitcoin ETF has become the fastest ETF to reach $20 billion.

Bitcoin has shaken up the wall street 🤯 pic.twitter.com/HehCIiLd6V

— Bitcoin Magazine (@BitcoinMagazine) May 30, 2024

Crypto ETFs

Martin highlighted that it took six years for the US Securities and Exchange Commission to approve bitcoin ETFs. The SEC has recently approved ether ETFs, which Martin believes was partly due to approximately $58bn into bitcoin ETFs since they launched in January 2024, which she described as a tremendous success.

“The flows are a strong sign that the market is looking for crypto in traditional structures,” she added. “We will continue to try to find opportunities to bring traditional structures coupled with crypto assets to the fore.”