Fusion Digital Assets is onboarding clients and aims to have the first live trades on TP Icap’s wholesale marketplace for spot crypto assets in early 2023 after successfully registering with the UK’s Financial Conduct Authority.
In December 2022, Fusion Digital Assets, which is only available to institutions, registered as a crypto asset exchange provider with FCA. The platform consists of three integrated elements: Fusion, TP Icap’s over-the-counter electronic trading platform; custodian Fidelity Digital Assets which provides independent custody of client inventories and settlement services through a segregated model; and Diversified Liquidity, which anonymously aggregates streaming liquidity from market makers and uncorrelated liquidity from TP Icap’s global customer base.
Simon Forster, co-head of digital assets at TP Icap Group, told Markets Media that after achieving FCA registration, the company is focused on a successful launch through its already completed integration with Fidelity Digital Assets.
“We are on-boarding customers and hope to place the first live trades through the platform early next year, build a critical mass of customers and have an official launch in the first half of next year,” he added.
The crypto industry has been hit by the collapse of FTX, one of the largest crypto trading platforms. Duncan Trenholme, co-head of digital assets at TP Icap Group, told Markets Media that as a result, market participants have a renewed focus on counterparty risk, governance, segregation of client funds and appropriate controls.
“Key to our business model design was that clients will have a separate, independent relationship with their custodian, who provides settlement services to the market, and that the exchange itself does not hold client funds,” Trenholme added. “I think it’s an important time to offer a credible alternative in digital assets, especially for those of our traditional clients who have yet to enter the market.”
Trenholme continued that the motivation behind offering this infrastructure was to provide a convenient, credible entry point for the majority of TP Icap’s traditional customers.
“The model was based on customer feedback that they struggled to enter crypto based on current participants, structures and jurisdictions,” he said.
Forster thinks it’s still pretty early to sift through the rubble of FTX, but there’s a percentage of customers who were about to enter the market and are now hitting pause.
“What we see and hear from customers certainly changes your view of where you might be doing business,” said Forster. “There was a segment of our clients that may be trading on certain exchanges and platforms and going forward will be more focused on the things we built and why we developed Fusion Digital Assets with a segregated custody solution and appropriate regulatory framework. ”
— Duncan Trenholme (@DuncanTrenholme) December 1, 2022
Forster described the FCA registration as an exciting next chapter as Fusion Digital Assets can be more visible and louder in TP Icap’s customer base.
“It will be critical to our success to articulate the message of why the model is different and why it solves some of the potential issues that have emerged in 2022,” he added.
The FCA registration builds on TP Icap’s footprint in digital assets since 2019 as the team provides price discovery and execution services for a range of crypto assets. The company also includes a range of crypto-asset exchange-traded funds and exchange-traded commodities. OTC derivatives of crypto assets are expected to follow in the coming months.
Trenholme said the first phase of TP Icap’s digital asset strategy was to establish a traditional brokerage desk for crypto derivatives on regulated exchanges, such as CME Group.
“This year we’re starting to see the rewards of that work,” he added. “Regulated exchanges have not been the main liquidity location for crypto derivatives so far, but we have seen a real flight to quality this year.”
The brokerage business is now established and there is a large addressable market as only a very small percentage of TP Icap’s clients have entered the asset class to date according to Trenholme.
“The key for us is having a mix of liquidity in terms of market makers and ELPs and an uncorrelated passive flow that provides an environment and infrastructure where clients can transact through a true wholesale market,” he said.
Outlook for 2023
Forster said 2023 is all about connectivity to customers, custodians and other distribution channels in TP Icap’s network.
“We are laying the groundwork for connecting custody, execution and distribution, the three key areas that are very difficult to combine effectively within crypto and believe this is a unique selling point for Fusion Digital Assets,” said Forster.
By the end of 2023, TP Icap aims to have a healthy crypto marketplace with Fidelity Digital Assets as the first custodian. The company is eager to be on the road to connecting with at least one other custodian, and there will likely be some clarity on how to integrate with various parts of TP Icap.
“A number of native crypto asset custodians have popped up, and some are doing phenomenal work,” Forster added. “However, our clients say it’s difficult to get into a completely new relationship for a fairly small asset class and fairly small allocation of their overall business, so companies like BNY Mellon and Nasdaq are positive signs to build that foundation on which to build.” the rest of the market can be built.”
In September this year, Nasdaq said it will develop an advanced custody solution that will include liquidity and execution services to address industry challenges around connectivity, availability and efficiency. The next month BNY Mellon, who is 238 years old, announced its Digital Asset Custody platform was live in the US with select clients able to hold and transfer bitcoin and ether. Cboe Global Markets recently completed syndication of minority interests whereby a group of thirteen firms became investor partners in the Cboe Digital business.
Congratulations to the @chainanalysis, @FireblocksHQ and @BNY Mellon plow. Great to see the early ’21 announcement moving through to the late ’22 launch. Huge for the #crypto industry. #Collaboration the way forward… https://t.co/YS6EzqWoWd
— Duncan Trenholme (@DuncanTrenholme) October 11, 2022
Forster said, “The space is getting very competitive, which is a good sign because it means we’re pointing in the right direction.”
He argued that TP Icap has given itself a good chance to be relevant in crypto after developing relationships with trading clients, custodians, people all over the market and also building trust.
“You can’t track those things quickly and I think we have an advantage as an early mover,” he added. “Now it’s time to make sure we execute on the strategy that we clearly defined more than three years ago.”
Another phase of TP Icap’s strategy is exploring tokenization. Trenholme said the company is focusing on establishing Fusion Digital Assets within the crypto asset class and will then explore using the same infrastructure to run secondary markets in other digital products, such as tokenized bonds or a tokenized carbon instrument. each of them settling for the underlying blockchain technology through a network of digital custodians.
TP Icap will also look at more research into where T+0 settlement used in digital assets can benefit traditional markets and where smart contracts could potentially simplify operational processes.
“The industry has certainly moved forward with tokenization, but widespread adoption of the technology is likely a 10 to 15 year transition,” Trenholme added. “There are no guarantees of success as it may not solve problems in every asset class.”
He continued that to reap the benefits of tokenization requires a critical mass of participants to have digital wallets and that crypto has been the catalyst to drive that change thus far.
“Over the past 18 months, there have been a large number of requests for information from traditional companies for blockchain and digital wallet capabilities,” Trenholme said. “Beyond just crypto, we believe businesses will soon realize they can use digital wallets for a wide variety of asset classes in token form.”