After the SEC "cleared the barriers of the exchange", did the good Wall Street student EDX Markets play?

Author: 0xmin

As the US SEC's regulatory storm sweeps the encryption world, an exchange news has attracted everyone's attention.

EDX Markets, a cutting-edge cryptocurrency trading platform backed by Wall Street forces such as Citadel Securities, Fidelity Investments and Charles Schwab, has begun executing transactions in recent weeks and is expected to announce its launch later Tuesday local time. . It has also received financing from Sequoia Capital, Paradigm and Virtu Financial, and is dedicated to serving institutional investors. It will provide trading in four cryptocurrencies, Bitcoin, Ethereum, Litecoin and Bitcoin Cash. These assets are currently not approved by the US SEC. identified as securities.

Compared with the previous news that the two major cryptocurrency exchanges, Binance and Coinbase, were deprived by the SEC, many people have speculated: **SEC is trying to clear the way and pave the way for Wall Street's own encrypted trading platform? **

Where is EDX Markets?

In a sense, EDX Markets is indeed a good boy who will be liked by the SEC and Wall Street.

Unlike traditional cryptocurrency exchanges such as Binance and Coinbase, **EDX Markets adopts a non-custodial model and does not hold customers' digital assets during transactions, thereby mitigating custody risks. **EDX Markets primarily facilitates the matching of buy and sell orders, similar to the role of traditional exchanges such as NASDAQ or NYSE.

EDX Markets CEO Jamil Nazarali said it will work with third-party custodians. It also plans to launch EDX Clearing later this year to settle trades on the EDX Markets platform.

Previously, SEC Chairman Gary Gensler directed that **cryptocurrency exchanges, like traditional assets, must comply with securities laws. At the same time, he pointed out that cryptocurrency exchanges have mixed functions. Funds make markets like that. **In other words, he believes that the current exchange is too big, integrating trading, market making, and custody.

EDX Markets seems to be trying to solve this problem criticized by the regulators, to strip off the market-making and custody functions, and turn it into a pure trading platform, similar to Nasdaq in the encrypted world. **

Nazarali seemed to agree with Gary Gensler's instructions, saying, "Regulators expect cryptocurrency exchanges not to function as broker-dealers, just like traditional financial market structures, which creates opportunities for EDX. Cryptocurrencies will To continue to exist, and for it to develop into an asset class, it will need to adopt the regulations and investor protection measures of the traditional financial field, which gives EDX more room.”

The second feature, EDX Markets is an institutional trading platform, avoids directly serving retail investors, they provide trading access based on API, rather than the traditional front-end**** user interface ****. **

It is worth mentioning that the Wall Street consortia behind EDX Markets.

Schwab (Charles Schwab)/Fidelity (Fidelity) is the largest retail securities broker in the United States. Citadel and Virtu are the top market makers on Wall Street.

I consulted Ms. Zhang from the same village who works as a cleaner on Wall Street. She told me that there are also new and old forces on Wall Street.

Old forces: Traditional Wall Street investment banks represented by Morgan Stanley and Goldman Sachs benefit from opaque B/C trade gaps and prefer opaque OTC transactions.

New Faction: Consisting of institutions like Knight Capital, Citadel, DRW, WorldQuant, etc... They started out with a lot of investment in technology, speed, and talent, and they are younger. For example, Robinhood’s payment partner for order flow is Citadel, RobinHood’s competitor to traditional Wall Street brokerages

The struggle between the two factions is similar to that between big banks and big tech companies, which have regulatory and technological advantages, respectively.

For example, in 2018, market maker Citadel launched a CLOB (Central Limit Order Book) for treasury bonds, and old-fashioned fixed-income trading desks benefited from opacity (OTC, non-electronic, no best bid/best offer, There is no order book), and CLOB makes fixed income a transparent market, which undoubtedly challenges the traditional market dominated by large banks.

So far, the future development path of EDX Markets seems to have become clear: Provide a market with high **** transparency, meet regulatory compliance requirements, only do non-custodial transaction matching, and serve institutional investors. **

EDX Markets is an attempt by new forces on Wall Street, trying to replicate the traditional financial market structure to the encrypted world, so as to meet regulatory requirements, and may develop into a small and alternative encrypted Nasdaq.

From a good point of view, it provides a seemingly compliant channel for traditional funds to enter the market, but on the other hand, it is not sexy, and it is not the "future exchange" that the encryption world expects. Follow-up How, it is worth looking forward to.