ANALYSIS: LCH marks entry into crypto with GFO-X launch

Speaking to FOW as the firms announced the service had gone live on Tuesday, chief executive and co-founder of GFO-X Arnab Sen (pictured) said the launch puts the firm in a strong position to harness growing institutional interest in the asset class. The first cash settled contracts reference the GFO-X/Coin Metrics Single Asset Real-Time Bitcoin Index and be denominated in US dollars.

“We have gone live with a full suite of products – including weekly options, monthly options and monthly futures,” Sen said. “The real opportunity is in growing that options market, because it is underserved in the regulated space.

“Our differentiator is that we have streaming prices at launch, with IMC quoting 300 instruments to clients. That means institutional traders now have a vol surface with inputs from a fully regulated, centrally cleared exchange.”

London-based GFO-X, which already had the backing of asset manager M&G Investments, said in December it had also signed banks ABN Amro Clearing and Standard Chartered, and market-makers IMC and Virtu Financial as strategic partners. At launch, ABN AMRO Clearing, Nomura and Standard Chartered are acting as clearing members for LCH.

“It was a big priority for us to bring this service to market after finalising service design, consultation with the market and receiving regulatory approval,” Marcus Robinson, head of DigitalAssetClear and CDSClear at LCH said in an interview. “This space evolves very quickly, and we are hearing that there is a lot more interest from institutional investors in crypto as an asset class.

“What we enable is the confidence in the infrastructure that supports that – which is tried and tested and familiar to many of those firms. From a risk management perspective, a segregated service allows clear separation which gives confidence to clearing brokers in those different businesses.”

Robinson in June last year moved for his role heading up post-trade strategy at parent company the London Stock Exchange group (LSEG) to his current role, after the firm in April received regulatory approval for crypto clearing. He sees potential for growing the market through the provision of central clearing.

“We believe that this creates an opportunity to increase the addressable market to grow two, three or four times where it is today,” Robinson added. “That is what we saw when clearing became the norm in the over-the-counter (OTC) market and we expect a similar trajectory in the crypto market as adoption grows.”

GFO-X last month announced a strategic partnership with Nomura’s digital asset subsidiary Laser Digital to support its push to attract both traditional institutional investors and crypto native firms looking to diversify their networks.

“The infrastructure we have in place allows us to benefit from market tailwinds from the regulatory landscape and the institutional interest that will allow us to scale this business,” Sen said. “We are one of the only businesses that can bridge that gap between traditional participants and the institutional end of the crypto native market.

“Having a non-US exchange that is Tier 1 regulated and Tier 1 and above cleared from a risk management perspective is good for the market, good for the competition and creates more arbitrage opportunities for institutions looking to enter the space.”

CME Group, which runs the largest traditionally regulated crypto market in the US, in March launched its first Solana futures and expanded its existing ether product suite. FOW Data shows CME traded 3.95 million lots of its main Bitcoin futures contracts last year, up two fifths on 2023. Average daily volume across crypto futures and options at the CME rose 141% year-on-year in the first quarter, to 198,000 lots according to data published by the exchange.