By Jamil Nazarali, CEO and John Fennell, Chief Risk Officer & Head of Clearing Operations
When we speak with prospective EDX Markets participants, one of the first things we ask is what they’re looking for in a trading venue. The answers vary, but they often boil down to one key factor: efficiency.
These financial institutions tend to value forward thinking, so they are willing to embrace innovative structures that enhance their digital asset trading experience. Almost invariably, they are looking to reach more counterparties, trade at higher volumes and secure better executions. At the same time, they value the responsible, trusted structures from traditional markets that enable them to operate at scale.
It’s fitting, then, that one of EDX Markets’ biggest drivers of value, delivering safety, security and efficiency, is our central clearinghouse.
From Security to Efficiency
Today, EDX Markets is the world’s only centrally cleared crypto trading venue. Integral to how our institution-only marketplace functions, EDX Clearing unlocks unique operational and capital efficiencies for our trading members.
In our conversations, financial institutions have an immediate positive response to our clearinghouse. As principal to each trade, EDX Clearing greatly reduces counterparty exposure risk by ensuring timely and certain settlements each day, drawing from its committed default fund if necessary. Our risk management processes are inspired by best practices from the world’s most sophisticated exchanges and institutional trading firms. Beyond these concrete benefits, our central clearinghouse represents a commitment to stability and responsibility, giving our members peace of mind that we offer a safe environment for trading.
What isn’t always immediately understood is the power of our clearinghouse to drive efficiency. Our mission is to operate the most trusted, liquid and efficient crypto trading venues available, and our clearinghouse is integral to all three pillars. Whether in the form of delivering flexible settlement processes or enabling members to collateralize trades with liquid assets or tokens they have in inventory, EDX Clearing is constantly identifying opportunities to responsibly lower the total cost of trading. EDX Clearing prioritizes its members’ safety, notably by segregating and protecting the assets our members entrust with us, even in the most extreme scenarios, including bankruptcy.
It may sound simple, but eliminating the need for bilateral transacting doesn’t just reduce counterparty risk – it saves members from the burden of actually creating and executing the bilateral agreements themselves. These agreements require extensive due diligence and significant time and effort from trading, technology and compliance personnel. At scale, they quickly become an operational nightmare. On our venue, members directly face EDX Clearing as the counterparty for every transaction, so they can perform the due diligence process only once and access a full universe of aggregated liquidity on day one.
With all trades settling through EDX Clearing, our clearinghouse also enables qualified members to settle on a net basis. This addresses the risk of members sending and receiving multiple payments each day, but it also dramatically simplifies back-office operations and lowers administrative costs, enabling these often-overworked teams to focus on more important priorities. Scaling non-additive processes is one of the principal challenges of growing a trading business.
By netting transactions and carefully managing risk across EDX Markets, we create an environment where we can extend leverage to qualified members – up to 5x on each deposit. Together, these capabilities enable market development, streamlined operations and volume growth, enabling institutions to trade digital assets with the same scale and sophistication as in traditional markets.
Critical Mass
While our clearinghouse enables meaningful safety and efficiency, this is just the beginning. The benefits will become even more apparent as we continue to onboard members and reinforce our presence in the market.
As more institutions have recognized the value of our model, we have created a large network of liquidity providers and order flow providers. These new entrants to EDX Markets make the liquidity environment more robust. Over time, the benefits of EDX Markets as an ideal environment for market participants to secure optimal execution results will contribute to the evolution of the digital asset space at large.
Building with scale and expertise, we’ll continue to fine-tune these operational and capital efficiencies to meet the high standards of today’s institutional market participants. Our investors support our view that central clearing is integral to market efficiency, and we are committed to working with these firms toward constant evolution and enhancement.
“The structure provided by EDX Clearing enables us to focus on what matters: executing trades and growing our business,” said Gordon Wallace, President & Co-Founder of BlockFills. “By removing the need for bilateral agreements and enabling net settlement, they have greatly reduced both counterparty risk and administrative burdens. This approach is exactly what institutional crypto markets need to reach their full potential.”
Supported by the secure protocols that only a central clearinghouse can provide, EDX Markets is built for trust, liquidity and efficiency at every turn. Our model insulates our clients from risk while delivering the institutional trading experience they require and the efficiencies to help them scale. It’s a powerful offering that we see as nothing less than a reinvention of institutional crypto markets.
Contact us today to learn more about our centrally cleared crypto trading venue.
