Bringing Cryptocurrency Into the Institutional Orderflow

Serg Gulko
4 min readJul 19, 2018

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I want to share the script I prepared for a panel discussion “Bringing Cryptocurrency Into the Institutional Orderflow” that took place in Chicago on July 18th.

Why are institutional customers becoming interested in crypto markets?

One of the obvious answers is money.

It’s pure money for small companies — but just part of the overall strategy for bigger players.

Currently no one can predict with 100% certainty that blockchain and the total tokenization of everything is the future or only a temporary intellectual exercise. It’s better to prepare by taking small steps, exploring how things work in crypto on your own experience (and not relying on scam artists that claim to see the future). If it finally will “moon” and all the good old financial instruments will be replaced by tokens, you’ve already got a department armed and ready to act. If the blockchain concept will fail — its only one department to restructure.

So basically, for large players, blockchain adoption is a risk mitigation technique.

What are the unique requirements of institutional customers vs. retail traders?

In general, all traders want the same things — a reliable place to execute their orders and do post-trade settlement.

So besides common things like basic assurances that exchanges owners will not disappear one day or the exchange will not be magically hacked, I can name three major things our clients are concerned with when it comes to crypto trading — very high execution fees, order throughput limitations, and the common absence of a FIX API.

No sense to discuss fees so I’ll jump to the more technical topics. Most of our clients are using automated trading systems and usually trade faster compared to “point and click” retail traders. Many exchanges have weird limitations like 20 orders per minute which is not always suitable.

As for API… right now this is a very interesting highly-technological zoo with many habitats like real API tigers Gemini or the upcoming DX Exchange that runs on the Nasdaq stack to rabbits and even ants.

What is it about FIX that people like, where would they want to apply it to crypto?

Most of the existing exchanges are offering WebSockets, REST or even REST-only APIs.

I know that it might be a little bit incorrect to compare it this way but Ws/REST is a transport layer — meanwhile FIX is an application layer.

FIX is offering a standard way to communicate between counterparties. Sure, there might be some differences from venue to venue but it is not that huge. Workflow is the same, the messaging structure is the same. Life is easy and beautiful.

With REST/Ws APIs it’s always different from exchange to exchange. Always. I know this from my personal experience.

FIX is usually associated with institutional clients and institutional type of volumes and some exchanges are working to provide it as an alternative to REST/Ws.

I know that Connamara is working closely with Bitfinex to build their FIX gateway, at the same time our company XTRD is working with OKEx and several smaller exchanges to do the same.

Where is the market with regards to support for additional features such as pre-trade and post trade risk? How will changing regulatory structures affect institutional adoption? How is performance in comparison to other markets?

Right now exchanges are mainly serving retail flow so features are also retail-oriented. All exchanges are running pre-trade risks because they are literally holding your assets — fiat and crypto.

Our clients (and we don’t have retail guys on board) are asking about master-sub account functionality which is not available at any exchange. From my point of view, this is an important feature but we should build it in-house.

As for post-trade risk management — I personally think that it’s too early to speak about it when we don’t have proper custodianship.

Crypto custody itself a great puzzle to solve. This is a combination of regulatory and technological obstacles.

And like a cherry on top, you’ll have issues with the fiat component. Basically, you can’t just go to JP Morgan Chase and open an account for your crypto trading desk. Only a few banks clear fiat for crypto use cases.

I know that what I say is obvious, but regulation means certainties. It could be good or bad but it defines rules — and based on these rules, market participants can make proper decisions to join or leave crypto.

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