NYSE Sees Opportunity for Traditional Structures in Crypto

Lynn Martin, NYSE Group chairman and ICE president of fixed income and data services, said the exchange will continue to try to find opportunities to surface traditional structures alongside crypto assets as it aims 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 May 29.

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

Lynn Martin, NYSE

Martin said the NYSE is working to gain regulatory approval to launch options contracts on Coindesk’s Bitcoin index. She said: “We are extremely excited about this.”

Andy Baehr, head of product at CoinDesk Indices, said in a statement: “XBX has delivered a trusted bitcoin price to millions of investors, market participants and bitcoin enthusiasts since 2014. Collaboration with NYSE to launch XBX index options opens a new chapter in digital assets, putting 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 company of CoinDesk Indices, also spoke on the Martin panel and Farley spoke at Consensus 2024.

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

“In the world of stock options, cash-settled options have a long history of being a very interesting product for clients,” Farley added. “Cash-settled S&P options may be the best-known options product.”

If options contracts are approved and traded, Farley said it 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 options will be an additional risk management tool, attractive to both new entrants and more established institutional names getting involved in bitcoin ETFs.

“This is yet another evolution in the way institutional and retail investors can manage risk in their portfolios, which I consider positive,” she said.

Accelerated settlement

On May 28, 2024, the U.S. securities market went from liquidating two days after a trade, T+2, to the day after the trade, T+1. In contrast, on-chain digital assets can be liquidated instantly.

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

The technology that underpins cryptography, specifically blockchain, is excellent technology,” she added. “It’s something 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 toward real-time settlement as it updates archaic technology, much of which was built in the 1980s. However, the traditional financial ecosystem needs to digest T+1 before to move on to the next innovation.

“I remain optimistic about using blockchain technology to make processes more efficient,” said Martin.

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

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

Furthermore, although instant settlement means there are no failed trades, the process requires much more capital because trades have to be pre-funded. Additionally, crypto venues have more outages than traditional exchanges.

Tom Farley, optimist

“Many crypto venues, including us, are close to canceling real-time settlement and offering things like deferred settlement because it allows for a lot more liquidity and more active trading,” Farley said.

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

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

Bitcoin and other digital assets are available for trading 24/7. The NYSE commissioned a survey on 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 offset piece in particular, to see how it would handle the 24/7 aspect, whether it’s five or seven days a week,” she added. “There are a variety of conversations going on.”

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

Crypto ETFs

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

“The flows are a strong signal that the market is looking for crypto on traditional structures,” she added. “We will continue to try to find opportunities to surface traditional structures alongside crypto assets.”

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