Markets
Standard Chartered’s crypto desk and Zodia Markets can coexist, CEO says — will traders understand? – DL News
- Standard Chartered is one of the first investment banks to offer spot Bitcoin and Ethereum to clients.
- The move appears to be in competition with Zodia Markets, a bank-backed company.
- Zodia Markets CEO Usman Ahmad says the move will provide traders with more options.
Six years ago, Ahmad Usman embarked on an experiment.
The banking veteran has set up a cryptocurrency trading company called Zodia Markets with investment from Standard Chartered, one of the UK’s biggest lenders.
The idea was to leverage Standard Chartered’s vaunted prowess in foreign exchange markets into a cryptocurrency trading desk that would attract institutional clients such as large hedge funds.
On paper, it seemed like a perfect marriage between an established market player and a bold new asset class.
However, last week, Standard Chartered threw a wrench into those plans when news emerged that the bank had set up another spot cryptocurrency trading desk under its own name.
This is encouraging — banks have been reluctant to offer crypto spot on a large scale as regulation threatens to make it costly for them to hold the assets.
Still, at first glance, the move threatened to sow confusion among customers — why have two cryptocurrency trading desks in plain sight?
However, Usman said DL News it’s all right. “There is no competition or conflict by itself — we just want to provide clients with multiple options in terms of how they execute trades,” Usman said.
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Investment professionals who deal with Standard Chartered are not so sure there is no confusion.
They agree, however, that the two tables will not go after the same customers.
‘There is no competition or conflict per se — we just want to offer clients multiple options in terms of how they execute trades.’
— Usman Ahmad
Large institutional clients such as banks and asset managers are wary of the considerable counterparty risks in cryptocurrency trading.
They would prefer to deal with a highly regulated bank like the giant Standard Chartered, with 83,000 staff and a market capitalisation of £19bn.
Smaller clients operating outside the bank’s family-owned scope can go to Zodia Markets, a person familiar with the bank’s trading operations said. DL News.
Standard Chartered will appeal to “higher-value, higher-ticket clients,” said the person, who asked not to be identified discussing the companies publicly. “With Zodia, there are smaller clients, higher turnover, perhaps those in jurisdictions the bank doesn’t want to touch.”
Standard Chartered did not respond to requests for comment. DL News.
Strange adjustment
The episode demonstrates how cryptocurrency trading can still be an uncomfortable option for traditional financial institutions.
While traditional banks have long dealt with cryptocurrency derivatives such as Bitcoin futures contracts and, more recently, spot price ETFs, caution about the asset remains.
Part of this is due to international banking standard-setters considering imposing a punitive tax on banks that hold cryptocurrencies on their balance sheets.
In press reportsStandard Chartered said it was “working closely with our regulators to support demand” for spot Bitcoin and Ether.
Ahmad said it is not uncommon for capital markets firms to operate parallel trading desks.
Interdealer broker TP Icap, for example, is made up of Tullet, Prebon and Icap, which competed before being consolidated under a single brand.
In other words, Standard Chartered’s cryptocurrency desk and Zodia can be compared to Audi and Volkswagen — both are owned by the Volkswagen Group, but the former caters to luxury buyers and the latter to middle-class drivers.
For his part, Ahmad said Zodia and Standard Chartered are not going after each other’s clients. He added that Zodia is finding clients in peripheral markets such as Turkey and the Middle East.
Zodia operates jointly with its parent company in other ways.
A choice for traders
In contrast to Standard Chartered’s dealing desk model, Zodia Markets offers an execution model known as “correspondent principal,” meaning it sits between the counterparties in a transaction and uses its own cryptocurrency inventory to execute the trade.
This liquidity is provided by Standard Chartered’s foreign exchange, or FX, desk.
While Standard Chartered needs a full day to settle trades — known in the industry as T+1 — Zodia can settle almost immediately thanks to the speed of blockchain technology.
At the same time, Zodia Markets operates outside of Standard Chartered’s traditional footprint and offers clients a wider range of access to digital assets, Ahmad said.
Clients who want the comfort of a big bank can turn to Standard Chartered’s new desk, while traders accustomed to dealing with more crypto-centric platforms can opt for Zodia Markets.
While duplication often creates complexity and management headaches, Ahmad says the dual model will offer traders a choice.
“It allows existing customers to access digital assets in the way they are used to,” Ahmad said.
Contact the author at joanna@dlnews.com.