Nearly ten years ago, the IEX Group set out to transform markets by launching a new kind of trading venue to overthrow traditional stock markets. Now the company, which has become famous by Michael Lewis’ “Flash Boys”, is collaborating with FTX in an attempt to put crypto on an equal footing with traditional finance.
In a statement on Tuesday, the New York-based firm – which gained securities exchange status in 2016 – said that Sam Bankman-Frieds FTX.US has agreed to make a strategic investment in the firm. The investment partnership will help the IEX, which has struggled to take market shares from US stock giants such as the New York Stock Exchange and Nasdaq in US stock trading, work towards creating a framework for crypto market structure.
The companies did not disclose terms, but the transaction is subject to regulatory approvals under the so-called HSR Act, indicating that it is greater than $ 100 million.
Like FTX, IEX plunged US equities as a relative novice. It struggled to topple the NYSE and Nasdaq with a new market structure and a speed bump that would slow down the access high-speed traders had to the market, while offering market data feeds at no cost. FTX also entered a market – albeit an unregulated one – dominated by established companies such as Binance and BitMEX.
IEX hopes that the partnership with FTX.US will form the basis of a regulated, well-defined crypto market structure. Although it is still unclear what concrete steps the two will take to achieve this.
“A mutual investor of IEX and FTX put us together,” IEX CEO Brad Katsuyama told The Block. “Sam and I met last year and we saw eye to eye on how important it is to help get the regulation right. We decided we wanted to work together and find a way to make it happen and develop a clear market structure. “
Katsuyama said he will play a major role in shaping its crypto efforts, noting that it is a “high priority” for the company. For FTX.US ‘part, Brett Harrison told The Block that “a partnership with IEX could help position FTX US as a proactive leader in the US crypto-regulatory landscape.”
IEX could also play a role in FTX.US ‘launch of stock trading, he said.
“When we’re ready to launch stocks, the door is open for the IEX to be a possible route for client orders,” Harrison said.
Still, it is not entirely clear what the IEX could build as it scales its cryptocurrency team, but Katsuyama noted that it could seek to serve as a bridge between the world of cryptocurrencies and digital securities. In Katsuyama’s view, there are no proper ramps for individuals to trade cryptocurrencies that can be considered securities by regulators.
“Being a digital asset security makes you illiquid,” he said. “The on-ramp needs to be built … This is an ongoing regulatory discussion, but it is one that the IEX will be a part of in the coming years.”
In particular, XRP – the cryptocurrency most closely associated with the fintech firm Ripple – has been at the crossroads of regulatory uncertainty, triggering its delisting from a number of exchanges as well as a suspension of trading among industry brokers.
“It’s ultimately the SEC’s decision to decide what is and what is not a security,” Katsuyama said.
But the IEX could, according to Katsuyama, help act as a technology partner to help solve this gap. In a sense, the IEX is a related spirit of cryptocurrency exchanges operating in a relatively unclear regulatory environment. The company aroused the anger of its colleagues in the market structure ecosystem as it sought its exchange license and unique speed bump.
In the short term, IEX will focus on working with FTX.US to develop market structure principles for crypto.
Regarding the general practice of crypto exchanges offering crypto market data for free, Katsuyama said this is an example of a crypto practice that is better than trading stock exchanges.
“You want to make the market available, you want to make the price affordable,” he said.
It is not common in the stock markets, where the IEX has long stood as a single exchange offering free data, but recently changed its position to offer data at what it considers reasonable prices.
FTX.US recently made headlines for finding a multibillion-dollar valuation in a deal backed by companies like Temasek and Paradigm. IEX counts Georgian Partners, CDPQ, Bain Capital and IVP as current investors. The company declined to share its valuation under the upcoming agreement with FTX.
Correction: This story has been edited to correct the list of firms that IEX counts as current investors.
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